PRER14A 1 dprer14a.htm PRELIMINARY PROXY Preliminary Proxy
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x

   Preliminary Proxy Statement    ¨    Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨

   Definitive Proxy Statement      

¨

   Definitive Additional Materials      

¨

   Soliciting Material Pursuant to §240.14a-12      

ENDEAVOR ACQUISITION CORP.

(Name of Registrant as Specified in Its Charter)

 

      


(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

¨ No fee required.

 

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

Common Stock of Endeavor Acquisition Corp.

 

  (2) Aggregate number of securities to which transaction applies:

37,258,065

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

Average of the bid and ask price for common stock as of November 1, 2007: ($12.30)

 

  (4) Proposed maximum aggregate value of transaction:

$458,274,200

 

  (5) Total fee paid:

$16,954

 

x Fee paid previously with preliminary materials: $16,954

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  (1) Amount previously paid:

  

 
  (2) Form, Schedule or Registration Statement No.:

  

 
  (3) Filing Party:

  

 
  (4) Date Filed:

  

 


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This proxy statement is dated November     , 2007 and is first being mailed to Endeavor stockholders on or about November     , 2007.

Endeavor Acquisition Corp.

590 Madison Avenue

21st Floor

New York, New York 10022

 


NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 12, 2007

TO THE STOCKHOLDERS OF ENDEAVOR ACQUISITION CORP.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Endeavor Acquisition Corp. (“Endeavor”), a Delaware corporation, will be held at 10:00 a.m., eastern time, on December 12, 2007, at the offices of Graubard Miller, Endeavor’s counsel, at The Chrysler Building, 405 Lexington Avenue, 19th Floor, New York, New York 10174. You are cordially invited to attend the meeting, which will be held for the following purposes:

(1) to consider and vote upon the adoption and approval of the Amended and Restated Agreement and Plan of Reorganization dated as of November 7, 2007 (the “Acquisition Agreement”), among Endeavor, AAI Acquisition, LLC, a California limited liability company and wholly owned subsidiary of Endeavor (“Merger Sub”), American Apparel Inc., a California corporation (“AAI”), American Apparel, LLC, a California limited liability company (“LLC”), each of American Apparel Canada Wholesale Inc. and American Apparel Canada Retail Inc. (together, the “CI companies” and, collectively with AAI and LLC, “American Apparel”), Dov Charney, a principal stockholder and member of AAI and LLC, respectively (“Mr. Charney”), Sang Ho Lim, the other principal stockholder and member of AAI and LLC, respectively (“Mr. Lim”), and the stockholders of each of the CI companies (the “CI Stockholders”), and the transactions contemplated thereby. The Acquisition Agreement amends and restates in its entirety that certain Agreement and Plan of Reorganization, dated as of December 18, 2006 (the “Original Agreement”), by and among Endeavor, AAI Acquisition Corp., AAI, LLC, the CI companies, Mr. Charney, Mr. Lim and the CI Stockholders. We refer to this proposal as the “acquisition proposal.” The board of directors and stockholders of each of AAI and each of the CI companies and the members of LLC have already approved and adopted the Acquisition Agreement.

(2) to consider and vote upon an amendment to the certificate of incorporation of Endeavor to change the name of Endeavor from “Endeavor Acquisition Corp.” to “American Apparel, Inc.” We refer to this proposal as the “name change amendment proposal”;

(3) to consider and vote upon an amendment to the certificate of incorporation of Endeavor to increase the number of authorized shares of Endeavor common stock from 75,000,000 to 120,000,000. We refer to this proposal as the “capitalization amendment proposal”;

(4) to consider and vote upon an amendment to the certificate of incorporation of Endeavor to remove the preamble and sections A through D, inclusive, of Article Sixth from the certificate of incorporation from and after the closing of the acquisition, as these provisions will no longer be applicable to Endeavor, and to redesignate section E of Article Sixth as modified as Article Sixth of Endeavor’s restated and amended certificate of incorporation. We refer to this proposal as the “Article Sixth amendment proposal”;

(5) to consider and vote upon the 2007 performance equity plan (an equity-based performance equity plan). We refer to this proposal as the “performance equity plan proposal”; and

(6) to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if, based upon the tabulated vote at the time of the special meeting, Endeavor is not authorized to consummate the acquisition—we refer to this proposal as the “adjournment proposal.”

 

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These items of business are described in the attached proxy statement, which we encourage you to read in its entirety before voting. Only holders of record of Endeavor’s common stock at the close of business on November 16, 2007 are entitled to notice of the special meeting and to vote and have their votes counted at the special meeting and any adjournments or postponements of the special meeting. Endeavor will not transact any other business at the special meeting or any adjournment or postponement of the meeting.

The acquisition proposal must be approved by the holders of a majority of the shares of Endeavor common stock sold in Endeavor’s initial public offering (“IPO”) that are cast at the special meeting. Each of the name change amendment, capitalization amendment and Article Sixth amendment proposals must be approved by the holders of a majority of the outstanding shares of Endeavor common stock. The performance equity plan proposal must be approved by the holders of a majority of the shares of Endeavor common stock that are present in person or represented by proxy and entitled to vote at the meeting.

The adoption of the acquisition proposal is conditioned on the adoption of the name change amendment and the capitalization amendment, and neither the name change amendment nor the capitalization amendment will be presented to the meeting for adoption unless the acquisition proposal is approved. The adoption of the Article Sixth amendment and the performance equity plan proposals are not conditions to the adoption of the acquisition proposal or to the adoption of either of the name change amendment or the capitalization amendment proposals, but if the acquisition proposal is not approved, neither the Article Sixth amendment proposal nor the performance equity proposal will be presented at the meeting for adoption. The adjournment proposal will not be considered at the meeting unless, based on the tabulated vote at the time of the special meeting, Endeavor is not authorized to consummate the acquisition.

Your broker, bank or nominee cannot vote your shares on any proposal unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. Abstentions will have the same effect as a vote “AGAINST” the name change amendment, capitalization amendment, Article Sixth amendment, the performance equity plan and adjournment proposals but will have no effect on the acquisition proposal. Broker non-votes, while considered present for the purposes of establishing a quorum, will have the same effect as a vote “AGAINST” the name change amendment, capitalization amendment, Article Sixth amendment and adjournment proposal, but will have no effect on the acquisition proposal or the performance equity plan proposal. However, since the adoption of the acquisition proposal is conditioned on the adoption of the name change amendment and capitalization amendment proposals, any broker non-vote with respect to the name change amendment or capitalization amendment proposals will decrease the likelihood of the adoption of such proposals and thus also reduce the likelihood of the effectuation of the acquisition proposal.

Each Endeavor stockholder that holds shares of common stock issued in Endeavor’s IPO has the right to vote against the acquisition proposal and demand that Endeavor convert such stockholder’s shares into cash equal to a pro rata portion of the funds held in the trust account into which a substantial portion of the net proceeds of Endeavor’s IPO was deposited. The exact conversion price will be determined as of a date which is two business days prior to the anticipated date of the consummation of the acquisition. As of November 1, 2007, the conversion price would have been approximately $7.97 in cash for each share of Endeavor common stock issued for the IPO. These shares will be converted into cash only if the acquisition is consummated. If, however, the holders of 20% (approximately 3,232,149 shares) or more shares of common stock issued in Endeavor’s IPO both vote against the acquisition proposal and demand conversion of their shares, Endeavor will not consummate the acquisition. Prior to exercising conversion rights, Endeavor stockholders should verify the market price of Endeavor’s common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights. Shares of Endeavor’s common stock are quoted on the American Stock Exchange under the symbol “EDA.” On November 1, 2007, the last sale price of Endeavor’s common stock was $12.30.

Endeavor’s initial stockholders who purchased their shares of common stock prior to Endeavor’s IPO, and which include all of Endeavor’s current directors and executive officers and their affiliates and are referred to

 

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collectively in this proxy statement as the “Endeavor Inside Stockholders,” currently own an aggregate of approximately 18.8% of the outstanding shares of Endeavor common stock. Each of the Endeavor Inside Stockholders has agreed to vote all of the shares they purchased prior to the IPO on the acquisition proposal in accordance with the vote of the majority of the votes cast by the holders of shares issued in the IPO. The Endeavor Inside Stockholders have also indicated that they intend to vote such shares “FOR” the adoption of the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals, as well as the adjournment proposal if considered at the special meeting. These Endeavor insiders also have indicated they intend to vote any shares they acquire after the IPO for all of the proposals. As of the record date, these Endeavor insiders have not acquired any additional shares of Endeavor common stock since the IPO.

After careful consideration, Endeavor’s board of directors has determined that the acquisition proposal and the other proposals are fair and in the best interests of Endeavor’s stockholders.

Endeavor’s board of directors unanimously recommends that you vote or give instruction to vote “FOR” the adoption of the acquisition proposal, the name change amendment proposal, the capitalization amendment proposal, the Article Sixth amendment proposal and the performance equity plan proposal and, if considered at the special meeting, the adjournment proposal.

All Endeavor stockholders are cordially invited to attend the special meeting in person. However, to ensure your representation at the meeting, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If you are a stockholder of record of Endeavor common stock, you may also cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the name change amendment, the capitalization amendment and the Article Sixth amendment proposals.

A complete list of Endeavor stockholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at the principal executive offices of Endeavor for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

Your vote is important regardless of the number of shares you own. Whether you plan to attend the special meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided.

Thank you for your participation. We look forward to your continued support.

 

NOVEMBER     , 2007     By Order of the Board of Directors
    Sincerely,
       
    Eric J. Watson
    Chairman and Treasurer

Neither the Securities and Exchange Commission nor any state securities commission has determined if this proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.

Endeavor maintains a website at www.endeavoracq.com. The contents of that website are not part of this proxy statement.

SEE “ RISK FACTORS” FOR A DISCUSSION OF VARIOUS FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE ACQUISITION.

 

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TABLE OF CONTENTS

 

     Page

Summary of Material Terms of the Acquisition

   1

Questions and Answers About the Proposals

   3

Summary of the Proxy Statement

   7

Selected Summary Historical and Pro Forma Consolidated Financial Information

   13

Risk Factors

   29

Forward-Looking Statements

   44

Special Meeting of Endeavor Stockholders

   45

The Acquisition Proposal

   50

The Acquisition Agreement

   83

Unaudited Pro Forma Condensed Combined Financial Statements

   95

Name Change Amendment Proposal

   115

Capitalization Amendment Proposal

   116

Article Sixth Amendment Proposal

   117

2007 Performance Equity Plan Proposal

   119

The Adjournment Proposal

   126

Other Information Related to Endeavor

   127

Business of American Apparel

   138

American Apparel’s Management’s Discussion And Analysis of Financial Condition and Results Of Operations

   154

Directors and Executive Officers of Endeavor Following the Acquisition

   201

Beneficial Ownership of Securities

   212

Certain Relationships and Related Party Transactions

   215

Description of Endeavor Common Stock and Other Securities

   218

Price Range of Endeavor Securities

   220

Appraisal Rights

   220

Stockholder Proposals

   220

Independent Auditors

   221

Delivery of Documents to Stockholders

   221

Where You Can Find More Information

   221

Index to Financial Statements

   FS-1

 

Annex A

  -    Amended and Restated Agreement and Plan of Reorganization   A-1

Annex B

  -    Amended and Restated Certificate of Incorporation   B-1

Annex C

  -    2007 Performance Equity Plan   C-1

Annex D

  -   

Lock-Up Agreement

  D-1

Annex E

  -    Voting Agreement   E-1

Annex F

  -    Opinion of Jefferies & Company, Inc.   F-1

Annex G

  -    Form of Escrow Agreement   G-1

Annex H

  -    Form of Registration Rights Agreement   H-1

Annex I

  -    Form of Tax Opinion to be issued by Graubard Miller   I-1

Annex J

  -    Form of Employment Agreement between Endeavor and Mr. Charney   J-1

 

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SUMMARY OF MATERIAL TERMS OF THE ACQUISITION

Parties

The parties to the acquisition are:

 

   

Endeavor Acquisition Corp. (“Endeavor”),

 

   

AAI Acquisition LLC (“Merger Sub”), a wholly owned subsidiary of Endeavor that was formed solely for the purpose of effecting the acquisition as described herein,

 

   

American Apparel Inc. (“AAI”),

 

   

American Apparel, LLC (inactive) (“LLC”),

 

   

Dov Charney, an owner of 50% of the outstanding capital stock of AAI, 50% of the outstanding membership interests of LLC and 100% of the securities of the CI companies (as defined below). (“Mr. Charney”),

 

   

Sang Ho Lim, the owner of the remaining 50% of the outstanding capital stock of AAI and the remaining 50% of the outstanding membership interests of LLC (“Mr. Lim”), and

 

   

Each of American Apparel Canada Wholesale Inc. and American Apparel Canada Retail Inc. (together, the “CI companies” and, collectively with AAI and LLC, “American Apparel” or the “American Apparel companies”).

See the section entitled “Summary of Certain Provisions of the Proxy Statement - Parties.”

The Acquisition

Under the terms of the Acquisition Agreement:

 

   

prior to the closing of the acquisition (the “Closing”), Mr. Charney will have the right, but not the obligation, to purchase all of the outstanding capital stock and membership interests of the American Apparel companies owned by Mr. Lim (the “Lim Buyout”), provided that, if the Lim Buyout is not consummated by Mr. Charney prior to the Closing, the Lim Buyout shall be consummated directly by Endeavor at its sole cost and expense;

 

   

prior to the Closing, all of the membership interests of LLC will be transferred to AAI;

 

   

AAI will be merged with and into Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of Endeavor; and

 

   

all of the outstanding capital stock of each of the CI companies, as successors in interest to the Canadian entities that were original signatories to the Acquisition Agreement, will be acquired by Endeavor, with each of them surviving the transaction as a wholly owned subsidiary of Endeavor.

See the section entitled “The Acquisition Proposal.”

Acquisition Consideration

 

   

In return for all of the capital stock in each of the American Apparel companies, Mr. Charney will receive from Endeavor up to an aggregate of 37,258,065 shares of Endeavor common stock, subject to downward adjustment if American Apparel’s net debt, as defined in the Acquisition Agreement, at the close of business on the date two business days prior to the Closing is more than $150,000,000. Following the Closing, Endeavor will pay and expense as part of its operations an aggregate of $2.5 million of cash bonuses to existing American Apparel employees. As of September 30, 2007, American Apparel’s net debt does not exceed $150,000,000 and it is not anticipated to exceed $150,000,000 at Closing. Accordingly, it is unlikely that any adjustment will be made to the number of shares issued to Mr. Charney. See the section entitled “The Acquisition Agreement—Acquisition Consideration.”

 

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Post-Closing Ownership of Endeavor Common Stock

As a result of the acquisition, and assuming that there is no adjustment to the number of shares issued based on American Apparel’s net debt and that:

 

   

no Endeavor stockholder demands that Endeavor convert its shares to cash as permitted by Endeavor’s certificate of incorporation, Mr. Charney will own approximately 65.2% of the outstanding Endeavor common stock and the current stockholders of Endeavor will own approximately 34.8% of the outstanding Endeavor common stock immediately following the Closing;

 

   

assuming approximately 19.99% of the common stock issued in Endeavor’s initial public offering votes against the acquisition and such stock is converted into cash, Mr. Charney will own approximately 69.1% of the outstanding Endeavor common stock and the current stockholders of Endeavor will own approximately 30.9% of the outstanding common stock of Endeavor immediately following the Closing.

The foregoing percentages do not take into account any exercise of outstanding warrants to purchase shares of Endeavor common stock (which warrants will become exercisable at Closing) or any outstanding options.

Escrow Agreement

 

   

At the closing of the acquisition, 8,064,516 of the Endeavor shares to be issued to Mr. Charney will be placed in escrow until the later of (a) the first anniversary of the Closing and (b) the thirtieth day after the date that Endeavor files its Annual Report on Form 10-K for the year ended December 31, 2007, as a fund for the payment of indemnification claims that may be made by Endeavor as a result of any breaches of American Apparel’s covenants, representations and warranties in the Acquisition Agreement and certain lawsuits to which American Apparel is a party. See the section entitled “The Acquisition Agreement—Escrow Agreement.”

Lock-Up Agreement

 

   

Mr. Charney has agreed not to sell any of the shares of Endeavor common stock he receives in the acquisition before the third anniversary of the Closing, subject to certain exceptions. See the section entitled “The Acquisition Agreement—Lock-up Agreement.”

Post-Acquisition Executive Officers and Employment Agreements

 

   

At the closing of the acquisition Mr. Charney, who is currently the chief executive officer of AAI, will become Endeavor’s chief executive officer and president. None of Endeavor’s current officers will continue with Endeavor after the acquisition. All of the current officers of American Apparel will continue in their current or related positions with American Apparel following the acquisition. Mr. Charney will enter into an employment agreement with Endeavor and American Apparel, effective as of the closing of the acquisition. See the section entitled “Directors and Executive Officers of Endeavor Following the Acquisition—Executive Compensation—Employment Agreement and Non-Competition Covenants.”

Post-Acquisition Board of Directors; Voting Agreement

 

   

After the acquisition, the board of directors of Endeavor will have nine members comprised of four persons designated by Mr. Charney, four persons designated by certain of Endeavor’s current stockholders and one person mutually designated by the parties in accordance with a voting agreement that will be executed by the parties immediately prior to closing. The voting agreement will provide that the parties thereto will vote their shares of Endeavor common stock in favor of such designees to serve as directors of Endeavor through the annual meeting of stockholders of Endeavor to be held in 2010. See the section entitled “The Acquisition Agreement—Election of Directors; Voting Agreement.”

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

 

Q.   Why am I receiving this proxy statement?    A.    Endeavor and American Apparel have agreed to a business combination under the terms of the Amended and Restated Agreement and Plan of Reorganization, dated as of November 7, 2007, as described in this proxy statement. This agreement is referred to as the “Acquisition Agreement.” A copy of the Acquisition Agreement is attached to this proxy statement as Annex A, and we encourage you to read it in its entirety.
        In order to complete the acquisition, Endeavor stockholders must vote in favor of (i) the Acquisition Agreement, (ii) an amendment to Endeavor’s certificate of incorporation to change the name of Endeavor from “Endeavor Acquisition Corp.” to “American Apparel, Inc.” and (iii) an amendment to Endeavor’s certificate of incorporation to increase the number of shares of authorized common stock from 75,000,000 to 120,000,000. Endeavor stockholders also will be asked to vote to approve (a) an amendment to Endeavor’s certificate of incorporation to make certain modifications to Article Sixth thereof and (b) the performance equity plan, but such approvals are not conditions to the acquisition. The performance equity plan has been approved by Endeavor’s board of directors and will be effective upon Closing, if approved by the stockholders. Endeavor’s amended and restated certificate of incorporation, as it will appear if all amendments proposed hereby are approved, is attached to this proxy statement as Annex B. The performance equity plan is attached to this proxy statement as Annex C.
        Endeavor will hold a special meeting of its stockholders to obtain these approvals. This proxy statement contains important information about the proposed acquisition, the other proposals and the special meeting of Endeavor stockholders. You should read it carefully.
        Your vote is important. We encourage you to vote as soon as possible after carefully reviewing this proxy statement.
Q.   Do I have conversion rights?    A.    If you hold shares of common stock issued in Endeavor’s IPO, then you have the right to vote against the acquisition proposal and demand that Endeavor convert such shares into a pro rata portion of the trust account in which a substantial portion of the net proceeds of Endeavor’s IPO are held. We sometimes refer to these rights to vote against the acquisition and demand conversion of the shares into a pro rata portion of the trust account as “conversion rights.”
Q.   How do I exercise my conversion rights?    A.   

If you wish to exercise your conversion rights, you must (i) vote against the acquisition proposal, (ii) demand that Endeavor convert your shares into cash, (iii) continue to hold your shares through the closing of the acquisition and (iv) then deliver your shares to our transfer agent within the period specified in a notice you will receive from Endeavor, which period will be not less than 20 days. In lieu of delivering your stock certificate, you may deliver your shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System.

 

Any action that does not include an affirmative vote against the acquisition will prevent you from exercising your conversion rights. Your vote on any proposal other than the acquisition proposal will have no impact on your right to seek conversion.

 

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        You may exercise your conversion rights either by checking the box on the proxy card or by submitting your request in writing to Endeavor at the address listed at the end of this section. If you (i) initially vote for the acquisition proposal but then wish to vote against it and exercise your conversion rights or (ii) initially vote against the acquisition proposal and wish to exercise your conversion rights but do not check the box on the proxy card providing for the exercise of your conversion rights or do not send a written request to Endeavor to exercise your conversion rights, or (iii) initially vote against the acquisition but later wish to vote for it, or (iv) otherwise wish to correct or change your proxy card, you may request Endeavor to send you another proxy card on which you may indicate your intended vote and, if that vote is against the acquisition proposal, exercise your conversion rights by checking the box provided for such purpose on the proxy card. You may make such request by contacting Endeavor at the phone number or address listed at the end of this section.
        Any corrected or changed proxy card or written demand of conversion rights must be received by Endeavor prior to the special meeting. No demand for conversion will be honored unless the holder’s stock certificate has been delivered to Endeavor’s transfer agent within the period specified in the notice that will be provided by Endeavor as described above.
        If, notwithstanding your negative vote, the acquisition is completed, then you will be entitled to receive a pro rata portion of the trust account, including any interest earned thereon, calculated as of two business days prior to the anticipated date of the consummation of the acquisition. As of the record date, there was approximately $128.7 million in the trust account, which would amount to approximately $7.97 per share sold in the IPO upon conversion. If you exercise your conversion rights, then you will be exchanging your shares of Endeavor common stock for cash and will no longer own these shares. See the section entitled “Special Meeting of Endeavor Stockholders—Conversion Rights” for the procedures to be followed if you wish to convert your shares into cash.
        Exercise of your conversion rights does not result in either the conversion or a loss of your warrants. Your warrants will continue to be outstanding and exercisable following a conversion of your common stock unless we do not consummate the acquisition. A registration statement must be in effect to allow you to exercise any warrants you may hold or to allow Endeavor to call the warrants for redemption if the redemption conditions are satisfied.
Q.   Do I have appraisal rights if I object to the acquisition?    A.    Endeavor stockholders do not have appraisal rights in connection with the acquisition under the General Corporation Law of the State of Delaware (“DGCL”).
Q.   What happens to the funds deposited in the trust account after consummation of the acquisition?    A.    After consummation of the acquisition, Endeavor stockholders properly electing to exercise their conversion rights will receive their pro rata portion of the funds in the trust account. Since there is no economic incentive for Mr. Charney to effect the Lim Buyout, Endeavor will effectively be required to effect the Lim Buyout and $60 million plus an additional cash amount based on the date on which the Lim Buyout is completed shall be used from the trust account and will therefore be unavailable to the combined companies. If the acquisition were to be consummated on December 14, 2007, and Endeavor was required to effect the Lim Buyout on the same date, Endeavor would pay Mr. Lim approximately $67.8 million. See the section entitled “The Acquisition

 

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        Agreement—Acquisition Consideration—Lim Buyout.” In addition, if Endeavor is required to convert 19.99% of the Public Shares into cash, approximately $25.7 million of the proceeds in trust would be paid to the holders thereof. Accordingly, the minimum amounts available to the combined companies at consummation of the acquisition will be approximately $34.9 million. Regardless of the amount of proceeds delivered to the combined companies at closing of the acquisition, approximately $18.7 million will be used to repay existing indebtedness, $3.2 million will be used to make certain prescribed distributions to stockholders of AAI in connection with their personal income tax responsibilities; and $2.5 million will be used to pay cash bonuses to retained American Apparel personnel. In addition, a portion of the proceeds will be used to pay approximately $1.8 million in underwriting commissions from Endeavor’s initial public offering to Ladenburg Thalmann & Co., which were deferred, and the costs associated with the acquisition, including professional and printing fees. The balance of the funds in the trust account will be released to Endeavor and will become funds of the consolidated companies.
Q.   What happens if the acquisition is not consummated?    A.    If Endeavor does not complete the acquisition by December 15, 2007, it will be dissolved pursuant to Section 275 of the Delaware General Corporation Law. In connection with such dissolution, the expected procedures of which are set forth in the section entitled “Other Information Related to Endeavor—Liquidation If No Business Combination,” Endeavor will liquidate and distribute to all of its public stockholders, in proportion to their respective equity interests, an aggregate sum equal to the amount in the trust account, inclusive of any interest, plus remaining assets. Holders of Endeavor common stock acquired prior to the IPO, including all of Endeavor’s officers and directors, have waived any right to any liquidation distribution with respect to those shares.
Q.   When do you expect the acquisition to be completed?    A.    It is currently anticipated that the Closing will occur promptly following the Endeavor special meeting on December 12, 2007. For a description of the conditions to completion of the acquisition, see the sections entitled “The Acquisition Agreement—Conditions to the Closing of the Acquisition.”
Q.   What do I need to do now?    A.    Endeavor urges you to read carefully and consider the information contained in this proxy statement, including the annexes, and to consider how the acquisition will affect you as a stockholder of Endeavor. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card.
Q.   How do I vote?    A.    If you are a holder of record of Endeavor common stock at the close of business on November 16, 2007, which is the record date for the special meeting, you may vote in person at the special meeting or by submitting a proxy for the special meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you must provide the record holder of your shares with instructions on how to vote your shares.

 

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Q.   If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?    A.    No. Your broker, bank or nominee cannot vote your shares on any proposal unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee.
Q.   Can I change my vote after I have mailed my signed proxy or direction form?    A.    Yes. Send a later-dated, signed proxy card to Endeavor’s secretary at the address of Endeavor’s corporate headquarters prior to the date of the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to Endeavor’s secretary, which must be received by Endeavor’s secretary prior to the special meeting.
Q.   Do I need to send in my stock certificates?    A.    Endeavor stockholders who do not elect to have their shares converted into a pro rata share of the trust account should not submit their stock certificates now or after the acquisition, because their shares will not be converted or exchanged in the acquisition. Endeavor stockholders who vote against the acquisition and exercise their conversion rights must deliver their shares to Endeavor’s transfer agent (either physically or electronically) after the meeting.
Q.   What should I do if I receive more than one set of voting materials?    A.    You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your Endeavor shares.
Q.   Who can help answer my questions?    A.    If you have questions about the acquisition or if you need additional copies of the proxy statement or the enclosed proxy card you should contact:
       

Martin Dolfi

Endeavor Acquisition Corp.

590 Madison Avenue, 21st Floor

New York, New York 10022

Tel: (212) 683-5350

        You may also obtain additional information about Endeavor from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.”
        If you intend to vote against the acquisition and seek conversion of your shares, you will need to deliver your shares (either physically or electronically) to Endeavor’s transfer agent at the address below after the meeting. If you have questions regarding the certification of your position or delivery of your shares, please contact:
       

Mark Zimkind

Continental Stock Transfer & Trust Company

17 Battery Place, 8th Floor

New York, New York 10004

Telephone: (212) 845-3287

 

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SUMMARY OF THE PROXY STATEMENT

Parties

Endeavor is a blank check company formed on July 22, 2005 to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Its mailing address is 590 Madison Avenue, New York, New York 10022. After the consummation of the acquisition, its mailing address will be 747 Warehouse Street, Los Angeles, California 90021, which is American Apparel’s corporate headquarters. Its present website address is www.endeavoracq.com. After the consummation of the acquisition its website address will be www.americanapparel.net, which is presently the website address of American Apparel.

American Apparel is a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel. As of September 30, 2007, American Apparel operated 165 retail stores in 13 countries, including the United States, Canada, Mexico, England, Germany, France, Switzerland, the Netherlands, Israel, Italy, Japan, Sweden and South Korea. American Apparel also operates a leading wholesale business that supplies t-shirts and other casual wear to distributors and screen printers. In addition to its retail stores and wholesale operations, American Apparel operates an online retail e-commerce website at www.americanapparelstore.com. See the section entitled “Business of American Apparel.

Acquisition Structure

Under the terms of the Acquisition Agreement:

 

   

prior to the Closing, Mr. Charney will have the right, but not the obligation to purchase all of the outstanding capital stock and membership interests of the American Apparel companies owned by Mr. Lim (“the Lim Buyout”), provided that, if the Lim Buyout is not consummated by Mr. Charney prior to the Closing, the Lim Buyout shall be consummated directly by Endeavor at its sole cost and expense;

 

   

prior to the Closing, all of the membership interests of LLC will be transferred to AAI;

 

   

AAI will be merged with and into Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of Endeavor; and

 

   

all of the outstanding capital stock of each of the CI companies will be acquired by Endeavor, with all of the CI companies surviving the transaction as wholly owned subsidiaries of Endeavor.

The stockholders owning all of the outstanding voting stock or membership interests of each of the American Apparel companies have approved and adopted the Acquisition Agreement in accordance with the applicable corporate or company laws of each such company’s jurisdiction of formation.

See the section entitled “The Acquisition Proposal.”

Acquisition Consideration

In return for all of the capital stock in each of the American Apparel companies, Mr. Charney will receive from Endeavor up to an aggregate of 37,258,065 shares of Endeavor common stock, subject to downward adjustment if American Apparel’s net debt, as defined in the Acquisition Agreement, at the close of business on the date two business days prior to the Closing is more than $150,000,000. Following the Closing, Endeavor will pay and expense as part of its operations an aggregate of $2.5 million of cash bonuses to existing American Apparel employees. See the section entitled “The Acquisition Agreement—Acquisition Consideration.

Lim Buyout

Mr. Charney has the right but not the obligation to purchase all of Mr. Lim’s equity interests in the American Apparel companies prior to the Closing. The purchase price shall be $60 million plus an additional

 

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cash price determined by the date on which the Lim Buyout is completed. In the event that the Lim Buyout is not consummated by Mr. Charney prior to closing of the acquisition for any reason, Endeavor shall effect the Lim Buyout as part of the acquisition by paying Mr. Lim cash for all of his equity interests in the American Apparel companies. The consideration to be received by Mr. Charney in connection with the Closing will not be reduced or otherwise affected should the Lim Buyout be consummated by Endeavor. Since there is no economic incentive for Mr. Charney to affect the Lim Buyout, Endeavor will effectively be required to affect the Lim Buyout. If the acquisition were to be consummated on December 14, 2007, and Endeavor was required to effect the Lim Buyout on the same date, Endeavor would pay Mr. Lim approximately $67.8. See the section entitled The Acquisition Agreement—Acquisition Consideration—Lim Buyout.

Other Proposals

In addition to voting on the acquisition, the stockholders of Endeavor will vote on proposals to change its name to “American Apparel, Inc.,” to increase the number of shares of common stock it is authorized to issue from 75,000,000 to 120,000,000, to amend its charter to delete certain provisions that will no longer be operative after the acquisition and to approve the performance equity plan. In addition, if, based on the tabulated vote at the time of the special meeting, Endeavor is not authorized to consummate the acquisition, the stockholders of Endeavor will vote on the adjournment proposal. See the sections entitled “Name Change Amendment Proposal,” “Capitalization Amendment Proposal,” “Article Sixth Amendment Proposal,” “2007 Performance Equity Plan Proposaland The Adjournment Proposal.

Interests of Endeavor’s Directors and Officers in the Acquisition

Certain of Endeavor’s officers and directors have interests in the acquisition that differ from, or are in addition to, those of Endeavor stockholders generally. In particular:

 

   

if the acquisition is not approved and Endeavor is required to liquidate, the 3,750,000 shares of common stock held by Endeavor’s officers and directors that were acquired prior to the IPO for an aggregate purchase price of $25,000 will be worthless. In the event the acquisition is not consummated, all 3,750,000 shares held by Endeavor’s officers and directors, which had an aggregate market value of approximately $46,125,000 as of November 1, 2007, would expire and be worthless.

 

   

As of November 1, 2007, Endeavor owes an aggregate of $575,000 to Mr. Eric Watson and Mr. Jonathan Ledecky, Endeavor’s current chairman of the board and president, respectively, and their affiliates. If the business combination is not consummated, Messrs. Watson and Ledecky will be repaid only to the extent Endeavor has sufficient funds available to it outside of the trust account. As of November 1, 2007, Endeavor had only nominal funds outside of the trust account. Accordingly, in the event the acquisition is not consummated, Messrs. Watson and Ledecky will not be repaid.

 

   

If Endeavor is unable to complete a business combination and is required to liquidate, Messrs. Watson and Ledecky will be personally liable under certain circumstances (for example, if a vendor does not waive any rights or claims to the trust account) to ensure that the proceeds in the trust account are not reduced by the claims of certain prospective target businesses and vendors or other entities that are owed money by Endeavor for services rendered or products sold to it.

See the section entitled “The Acquisition Proposal—Interests of Endeavor’s Directors and Officers in the Acquisition.”

Interests of American Apparel’s Directors and Officers in the Acquisition

In addition, we urge you to consider the interests of certain directors and officers of American Apparel in the acquisition. In particular:

 

   

in connection with the consummation of the acquisition, Mr. Charney shall receive an aggregate of up to 37,258,065 shares of Endeavor’s common stock, subject to downward adjustment, which will result in Mr. Charney owning up to 69.1% of the outstanding Endeavor common stock immediately

 

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following the Closing, assuming that approximately 19.99% of the common stock issued in Endeavor’s initial public offering votes against the acquisition and such stock is converted into cash. In the event the acquisition is not consummated, none of the 37,258,065 shares issuable to Mr. Charney, which have an aggregate market value of approximately $458,274,200 as of November 1, 2007, would be issued. In addition, Mr. Charney will enter into an employment agreement with Endeavor concurrently with the Closing under which he shall receive an annual base salary of $750,000 and also be entitled to receive an annual bonus of up to 150% of his base salary and a long-term bonus over the initial three-year term of the employment agreement of up to 300% of his base salary upon attainment by Endeavor of performance objectives to be determined by Endeavor’s compensation committee following the Closing.

 

   

Mr. Charney has the right, but not the obligation to purchase all of Mr. Lim’s equity interest in the American Apparel companies prior to Closing for $60 million plus an additional cash price to be determined based upon the date on which the Lim Buyout is completed. However, in the event that Mr. Charney does not consummate the Lim Buyout prior to the Closing, Endeavor shall effect the Lim Buyout as part of the transaction at its sole cost and expense. Since there is no economic incentive for Mr. Charney to affect the Lim Buyout, Endeavor will effectively be required to affect the Lim Buyout. Assuming the acquisition is consummated on December 14, 2007 and Endeavor is required to purchase Mr. Lim’s equity interest, Endeavor would pay Mr. Lim approximately $67.8 million.

 

   

certain key officers and other employees of American Apparel may receive a cash bonus in connection with the consummation of the acquisition. The aggregate total of cash bonuses to be awarded has been set at $2.5 million.

 

   

all outstanding unsecured indebtedness currently due and owing from American Apparel to Messrs. Charney and Lim, as well as certain members of their respective families and officers of American Apparel, shall be paid by Endeavor immediately following the Closing. At September 30, 2007, the aggregate amount of such indebtedness was approximately $18.7 million.

Please see the sections entitled “The Acquisition Agreement—Acquisition Consideration” and “Certain Relationships and Related Party Transactions—American Apparel Related Party Transactions” for a more detailed discussion of these interests.

Federal Income Tax Consequences

The merger of AAI info Merger Sub and the acquisition by Endeavor of all of the outstanding capital stock of the CI companies will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and no gain or loss will be recognized by Endeavor or American Apparel as a result of the acquisition. Further, no gain or loss will be recognized by non-converting stockholders of Endeavor as a result of the acquisition. See the section entitled “The Acquisition Proposal—Material Federal Income Tax Consequences of the Acquisition.

Opinion of Jefferies & Company, Inc.

In connection with the acquisition as contemplated by the Original Agreement, Endeavor’s board of directors received an opinion from Jefferies & Company, Inc., or Jefferies, as to (i) the fairness to the holders of Endeavor common stock (other than any affiliates of Endeavor), from a financial point of view and as of the date of Jefferies’ opinion, of the consideration of approximately 32.3 million shares of Endeavor common stock that was to be paid by Endeavor pursuant to the Original Agreement, and (ii) whether the fair market value of American Apparel was at least equal to 80% of Endeavor’s net assets. The full text of Jefferies’ opinion, which sets forth the assumptions made, matters considered and limitations on the scope of review undertaken by Jefferies in rendering its opinion, is attached to this proxy statement as Annex F.

Endeavor encourages stockholders to read this opinion carefully and in its entirety. Jefferies’ opinion addresses only the fairness to the holders of Endeavor common stock (other than any affiliates of Endeavor), from a financial point of view and as of the date of Jefferies’ opinion, of the consideration of approximately

 

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32.3 million shares of Endeavor common stock that was to be paid by Endeavor under the terms of the Original Agreement, and whether the fair market value of American Apparel was at least equal to 80% of Endeavor’s net assets. Jefferies’ opinion does not address any other aspect of the acquisition or the terms of the Acquisition Agreement, which amends and restates the Original Agreement in its entirety. Jefferies’ opinion does not constitute a recommendation as to how any holder of Endeavor common stock should vote on the acquisition or any matter related thereto.

Recommendation of Endeavor Board of Directors

Endeavor’s board of directors:

 

   

has unanimously determined that the acquisition proposal and each of the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals are fair to and in the best interests of Endeavor and its stockholders;

 

   

has unanimously approved the acquisition proposal and each of the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the acquisition proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the name change amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the capitalization amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the Article Sixth amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the proposal to approve the performance equity plan; and

 

   

if necessary, unanimously recommends that Endeavor’s common stockholders vote “FOR” the proposal to approve an adjournment of the special meeting.

American Apparel Stockholders Approval

All of the stockholders of the American Apparel companies have approved the acquisition by written consent for purposes of the corporate and company laws of the State of California and the applicable Canadian federal and provincial law. Accordingly, no further action by the American Apparel stockholders is needed to approve the acquisition.

Reasons for the Acquisition

Endeavor believes that American Apparel is positioned for continued growth in its markets and believes that a business combination with American Apparel will provide Endeavor stockholders with an opportunity to participate in an enterprise with significant growth potential. American Apparel had an annual growth rate in revenues of approximately 41.1% from revenues of approximately $201.5 million in 2005 to revenues of approximately $284.3 million in 2006, and an annual growth rate in EBITDA of approximately 33.3% from EBITDA of approximately $16.8 million in 2005 to EBITDA of approximately $22.4 million in 2006. For the nine month period ended September 30, 2007, American Apparel had revenues of approximately $275.6 million. This was an approximate 31% increase over revenues of approximately $209.8 million for the nine month period ended September 30, 2006. American Apparel’s retail sales for the first nine months of 2007 were approximately $126.0 million, an increase of approximately 51% over retail sales of approximately $83.6 million in the comparable period for 2006. EBITDA for the nine month period ended September 30, 2007 was approximately $40.2 million, an increase of approximately 125.8% over EBITDA of approximately $17.8 million for the comparable period for 2006. See “The Acquisition Proposal—Background of the Acquisition—Endeavor’s Board

 

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of Directors’ Reasons for Approval of the Acquisition.” A discussion of American Apparel’s use of EBITDA and a reconciliation of American Apparel’s EBITDA to net income, the most comparable GAAP measure, is contained in “Selected Summary Historical and Pro Forma Consolidated Financial Information—Non-GAAP Financial Measures.

Risk Factors

In analyzing the proposed acquisition, Endeavor considered the risk factors identified in “Risk Factors and notes that, among other risks, American Apparel had aggregate existing net debt as defined in the Acquisition Agreement of approximately $124.7 million as of September 30, 2007, American Apparel was required to negotiate waivers with respect to its current noncompliance with certain covenants under its existing bank and credit facilities and American Apparel is involved in certain litigations and claims. See the section entitled “American Apparel’s Management Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

In evaluating the acquisition proposal, as well as the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals, you should carefully read this proxy statement and consider the factors discussed in the section entitled Risk Factors.

Certain Waivers and Amendments

Waivers

In March and April 2007, Endeavor waived certain obligations of American Apparel contained in the Original Agreement. Specifically, Endeavor waived the requirement that:

 

   

American Apparel deliver audited financial statements for the years ended December 31, 2006, 2005 and 2004 by January 30, 2007, although it did not waive the obligation to ultimately deliver such financial statements (which have since been delivered);

 

   

American Apparel deliver projections that demonstrate it would have EBITDA of at least $50 million for the year ending December 31, 2007 giving effect to certain adjustments; and

 

   

American Apparel deliver projections that demonstrate it would have EBITDA of at least $70 million for the year ending December 31, 2008 giving effect to certain adjustments.

No additional obligations were imposed or agreed to in connection with the foregoing waivers.

Modifications

The Original Agreement provided, as a condition to Endeavor’s obligation to close the acquisition, that American Apparel have EBITDA of at least $30 million for the year ended December 31, 2006, after giving effect to certain adjustments, such as inventory write downs and workers compensation expenses, aggregating $5 million. In April 2007, Endeavor allowed an increase to the adjustments to approximately $9.9 million in the aggregate. No additional obligations were imposed or agreed to in connection with the foregoing modification.

Amended and Restated Acquisition Agreement

On November 7, 2007, the Original Agreement was amended and restated in its entirety by the Acquisition Agreement to give effect to the foregoing waivers and modifications by removing those financial statement and financial projections delivery obligations and to, among other things:

 

   

substitute a limited liability company for a corporation as the Merger Sub;

 

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increase the number of shares of Endeavor being issued to Mr. Charney at the closing of the acquisition from 32,258,065 to 37,258,065;

 

   

provide that if Mr. Charney does not affect the Lim Buyout prior to Closing and Endeavor is therefore required to affect the Lim Buyout, the shares issuable to Mr. Charney in the acquisition would not be reduced as provided in the Original Agreement;

 

   

increase the level of American Apparel’s net debt above which there would be a downward adjustment in the number of shares issued to Mr. Charney at the closing of the acquisition from $110 million to $150 million;

 

   

increase the size of the 2007 performance equity plan from 2,710,000 shares to 7,710,000 shares and to provide that stock awards for an aggregate of 2,710,000 shares would be allocated and issued thereunder after Closing and upon filing of an effective registration statement on Form S-8; and

 

   

eliminate as a closing condition the hiring of a chief financial officer, chief operations officer and chief information officer.

Additionally, in connection with the revised terms of the acquisition, the terms of the employment agreement to be executed by Mr. Charney and Endeavor at the closing of the acquisition as contemplated by the Original Agreement have been revised and include an annual base salary of $750,000 and performance-based bonuses. See the section entitled “Directors and Executive Officers of Endeavor Following the Acquisition—Executive Compensation—Employment Agreement and Non-Competition Covenants.”

After discussion with Jefferies, the board of directors of Endeavor determined to forego obtaining a new opinion in connection with the amended and restated Acquisition Agreement given the limited time remaining to consummate the acquisition prior to the date Endeavor would be required to liquidate and Endeavor’s lack of remaining funds outside the trust. See “The Acquisition Proposal—Background of the Acquisition—Endeavor’s Board of Directors’ Reasons for Approval of the Acquisition.”

See the section entitled “The Acquisition Agreement—Certain Waivers and Amendments” and “The Acquisition Proposal—Endeavor’s Board of Directors’ Reasons for Approval of the Acquisition.”

 

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SELECTED SUMMARY HISTORICAL AND PRO FORMA

CONSOLIDATED FINANCIAL INFORMATION

We are providing the following selected financial information to assist you in your analysis of the acquisition.

AAI’s consolidated statements of operations for the nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited) and years ended December 31, 2006 (audited), December 31, 2005 (audited) and December 31, 2004 (unaudited) and consolidated balance sheets as of September 30, 2007 (unaudited), September 30, 2006 (unaudited), December 31, 2006 (audited), December 31, 2005 (audited) and December 31, 2004 (unaudited), are included elsewhere in this proxy statement.

The CI companies’ combined statements of operations for the nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited) and years ended December 31, 2006 (audited), December 31, 2005 (audited) and December 31, 2004 (unaudited) and combined balance sheets as of September 30, 2007 (unaudited), September 30, 2006 (unaudited), December 31, 2006 (audited), December 31, 2005 (audited) and December 31, 2004 (unaudited), are included elsewhere in this proxy statement.

Endeavor’s statements of operations for the nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited), year ended December 31, 2006 (audited) and period from July 22, 2005 (Inception) to December 31, 2005 (audited) and balance sheets as of September 30, 2007 (unaudited), September 30, 2006 (unaudited), December 31, 2006 (audited) and December 31, 2005 (audited), are included elsewhere in this proxy statement.

In the opinion of each of Endeavor’s and American Apparel’s management, the respective unaudited financial statements include all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of such consolidated financial statements. AAI’s interim financial statements for the period ended September 30, 2007 and 2006 were not required to be reviewed and therefore were not reviewed by an independent registered public accounting firm using professional review standards and procedures.

The selected financial information of AAI, the CI companies and Endeavor is only a summary and should be read in conjunction with each company’s historical consolidated financial statements and related notes and “Other Information About Endeavor” and “American Apparel’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this proxy statement. The information presented may not be indicative of the future performance of Endeavor, AAI or the CI companies or the combined company resulting from the acquisition.

 

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American Apparel, Inc. and Subsidiaries (AAI)

Selected Historical Consolidated Financial Information (a)

(in thousands of dollars except share data)

 

   

Nine Months Ended

September 30,

    Year Ended December 31,  
    2007     2006     2006     2005     2004     2003     2002  
    (unaudited)     (unaudited)                 (unaudited)     (unaudited)     (unaudited)  

Consolidated Statements of Operations:

             

Net sales

  $ 254,837     $ 196,745     $ 264,691     $ 188,106     $ 127,929     $ 77,983     $ 38,564  

Cost of sales

    119,103       106,064       138,385       101,048       80,995       49,086       26,390  
                                                       

Gross profit

    135,734       90,681       126,306       87,058       46,934       28,897       12,174  

Operating expenses

    108,270       82,388       117,006       76,823       37,676       22,261       9,812  
                                                       

Income from operations

    27,464       8,293       9,300       10,235       9,258       6,636       2,362  

Interest expense

    12,255       7,869       10,797       6,258       1,928       855       671  

Other (income) expense

    (1,097 )     (350 )     (1,208 )     2       (12 )     172       12  
                                                       

Income (loss) before income taxes

    16,306       774       (289 )     3,975       7,342       5,609       1,679  

Income tax expense (benefit)

    4,725       959       1,335       392       1,019       (379 )     13  
                                                       

Net income (loss)

  $ 11,581     $ (185 )   $ (1,624 )   $ 3,583     $ 6,323     $ 5,988     $ 1,666  
                                                       

Weighted average diluted shares outstanding

    100,000       100,000       100,000       100,000       100,000       100,000       100,000  

Basic and diluted net income (loss) per share

    115.81       (1.85 )     (16.24 )     35.83       63.23       59.88       16.66  

Cash dividends per share

    47.35       6.74       6.96       29.90       3.13       3.63       4.55  
    September 30,     December 31,  
    2007     2006     2006     2005     2004     2003     2002  
    (unaudited)     (unaudited)                 (unaudited)     (unaudited)     (unaudited)  

Consolidated Balance Sheet Data:

             

Total assets

  $ 182,956     $ 148,306     $ 148,157     $ 124,226     $ 82,865     $ 30,206     $ 12,842  

Total current liabilities

    50,763       58,830       59,794       44,915       57,622       21,565       9,657  

Total long-term liabilities

    113,464       76,069       76,661       65,365       12,780       1,696       1,147  

Stockholders’ equity

    18,729       13,407       11,702       13,946       12,463       6,945       2,038  
   

Nine Months Ended

September 30,

    Year Ended December 31,  
    2007     2006     2006     2005     2004     2003     2002  
    (unaudited)     (unaudited)                 (unaudited)     (unaudited)     (unaudited)  

Other Cash Flow Data:

             

Cash Flow (used in) from operations

  $ (12,629 )   $ 1,505     $ 9,886     $ (1,116 )   $ (16,607 )   $ (4,211 )   $ (789 )

Cash Flow used in investing activities

    (10,892 )     (13,085 )     (15,232 )     (15,859 )     (9,895 )     (3,119 )     (2,285 )

Cash Flow from financing activities

    26,600       13,432       6,001       17,428       27,756       7,706       3,500  

Effect on cash from exchange rates

    197       137       177       (136 )     —         0       0  
                                                       

Net change in cash

  $ 3,276     $ 1,989     $ 832     $ 317     $ 1,254     $ 376     $ 426  
                                                       

Other Consolidated Data (unaudited):

             

EBITDA (b)

  $ 36,618     $ 15,942     $ 19,938     $ 15,603     $ 11,476     $ 7,536     $ 2,828  
                                                       

(a) These financial statements do not include the results of operations or financial condition of the CI companies, which are audited separately, and set forth separately in this proxy.
(b) See “—Non-GAAP Financial Measures.”

 

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The American Apparel Group of Canada (CI)

Selected Historical Combined Financial Information (a)

(in thousands of dollars, except share data)

 

     Nine Months Ended September 30,  
     2007     2007     2006     2006  
    

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

   

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

 

Combined Statements of Operations:

        

Net sales

   $ 33,100     $ 30,017     $ 25,837     $ 22,819  

Cost of sales

     12,044       10,922       9,670       8,541  
                                

Gross profit

     21,056       19,095       16,167       14,278  

Operating expenses

     18,294       16,590       14,988       13,238  
                                

Income from operations

     2,762       2,505       1,179       1,040  

Interest expense

     991       899       803       708  

Other expense (income)

     —         —         —         —    
                                

Income before income taxes

     1,771       1,606       376       332  

Income tax expense

     812       735       259       228  
                                

Net Income

   $ 959     $ 871     $ 117     $ 104  
                                

Weighted average diluted shares outstanding

     2,010       2,010       1,710       1,710  

Basic and diluted net income (loss) per share

     477.11       433.33       68.12       60.82  

Cash dividends per share

     —         —         —         —    
     September 30,  
     2007     2007     2006     2006  
    

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

   

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

 

Combined Balance Sheet Data:

        

Total assets

   $ 17,500     $ 17,642     $ 18,239     $ 16,376  

Total current liabilities

     8,471       8,539       11,727       10,529  

Total long-term liabilities

     5,882       5,930       4,690       4,211  

Shareholders’ equity

     3,147       3,172       1,822       1,636  
     Nine Months Ended September 30,  
     2007     2007     2006     2006  
    

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

   

CDN $

(unaudited)

   

USD $ (c)

(unaudited)

 

Other Cash Flow Data:

        

Cash Flow from (used in) operations

   $ 5,961     $ 5,406     $ (117 )   $ (103 )

Cash Flow (used in) investing activities

     (2,118 )     (1,921 )     (937 )     (828 )

Cash Flow from financing activities

     (4,146 )     (3,760 )     1,032       911  

Effect on cash from exchange rates

     —         (14 )     —         27  
                                

Net change in cash

   $ (303 )   $ (289 )   $ (22 )   $ 7  
                                
     Nine Months Ended September 30,  
     2007     2007     2006     2006  
     CDN $     USD $ (c)     CDN $     USD $ (c)  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Other Data (unaudited):

        

EBITDA (b)

   $ 4,125     $ 3,741     $ 2,360     $ 2,084  
                                

(a) These financial statements do not include the results of operations or financial condition of AAI, which are audited separately and set forth separately in this proxy statement.
(b) See “—Non-GAAP Financial Measures.”
(c) Canadian dollars presented as of September 30, 2007 and 2006 were converted at an exchange rate of $1.0081 and $0.8979, respectively. Canadian dollars presented for the nine months ended September 30, 2007 and 2006 were converted at an exchange rate of $0.9069 and $0.8832, respectively.

 

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Table of Contents

The American Apparel Group of Canada (CI)

Selected Historical Combined Financial Information (a)

(in thousands of dollars, except share data)

 

    Year Ended December 31,  
    2006     2006     2005     2005     2004     2004     2003     2003     2002     2002  
    CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)  
                            (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Combined Statements of Operations:

                   

Net sales

  $ 34,658     $ 30,544     $ 29,283     $ 23,728     $ 17,379     $ 13,384     $ 11,038     $ 7,907     $ 5,835     $ 3,718  

Cost of sales

    12,852       11,327       11,466       9,291       8,786       6,766       6,138       4,397       4,000       2,549  
                                                                               

Gross profit

    21,806       19,217       17,817       14,437       8,593       6,618       4,900       3,510       1,835       1,169  

Operating expenses

    20,473       18,042       17,044       13,811       8,068       6,214       3,928       2,814       1,423       907  
                                                                               

Income from operations

    1,333       1,175       773       626       525       404       972       696       412       262  

Interest expense

    1,151       1,014       642       520       343       264       125       90       47       30  
                                                                               

Income before income taxes

    182       161       131       106       182       140       847       606       365       232  

Income tax expense

    271       239       138       112       71       55       288       206       140       89  
                                                                               

Net (loss) income

  $ (89 )   $ (78 )   $ (7 )   $ (6 )   $ 111     $ 85     $ 559     $ 400     $ 225     $ 143  
                                                                               

Weighted average diluted shares outstanding

    1,710       1,710       1,710       1,710       1,000       1,000       1,000       1,000       1,000       1,000  

Basic and diluted net income (loss) per share

    (52.05 )     (45.61 )     (4.09 )     (3.51 )     111.00       85.00       559.00       400.00       225.00       143.00  

Cash dividends per share

    —         —         —         —         —         —         —         —         —         —    
    December 31,  
    2006     2006     2005     2005     2004     2004     2003     2003     2002     2002  
    CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $     CDN $     USD $ (c)     CDN $     USD $ (c)  
                            (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Combined Balance Sheet Data:

                   

Total assets

  $ 18,082     $ 15,532     $ 17,297     $ 14,834     $ 11,148     $ 9,275     $ 6,005     $ 4,640     $ 2,631     $ 1,669  

Total current liabilities

    9,152       7,862       10,756       9,225       7,812       6,499       4,226       3,265       1,579       1,002  

Total long-term liabilities

    7,228       6,205       5,073       4,350       2,046       1,702       523       404       314       199  

Shareholders’ equity

    1,702       1,462       1,468       1,259       1,290       1,074       1,256       971       737       468  
    Year Ended December 31,  
    2006     2006     2005     2005     2004     2004     2003     2003     2002     2002  
    CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)  
                            (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Other Cash Flow Data:

                   

Cash Flow from (used in) operations

  $ (519 )   $ (457 )   $ 129     $ 106     $ 1,615     $ 1,241     $ (1,155 )   $ (827 )   $ (1,121 )   $ (714 )

Cash Flow used in investing activities

    (1,881 )     (1,658 )     (3,908 )     (3,166 )     (3,339 )     (2,565 )     (518 )     (371 )     (156 )     (99 )

Cash Flow from financing activities

    2,814       2,480       4,025       3,261       1,724       1,324       1,673       1,198       1,125       716  

Effect on cash from exchange rates

    —         (9 )     —         12       —         —         —         —         —         —    
                                                                               

Net change in cash

  $ 414     $ 356     $ 246     $ 211     $ —       $ —       $ —       $ —       $ (152 )   $ (97 )
                                                                               
    Year Ended December 31,  
    2006     2006     2005     2005     2004     2004     2003     2003     2002     2002  
    CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)     CDN $     USD $ (c)  
                            (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Other Data (unaudited):

                   

EBITDA (b)

  $ 2,944     $ 2,595     $ 1,866     $ 1,511     $ 903     $ 695     $ 1,039     $ 744     $ 449     $ 286  
                                                                               

(a) These financial statements do not include the results of operations or financial condition of AAI, which are audited separately and set forth separately in this proxy statement.
(b) See “—Non-GAAP Financial Measures.”
(c) Canadian dollars presented as of December 31, 2006, 2005, 2004, 2003 and 2002 were converted at an exchange rate of $0.8590, $0.8576, $0.8319, $0.7727 and $0.6344 respectively. Canadian dollars presented for the year ended December 31, 2006, 2005, 2004, 2003 and 2002 were converted at an exchange rate of $0.8813, $0.8103, $0.77014, $0.7163 and $0.6372 respectively.

 

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Table of Contents

Endeavor Acquisition Corp.

Selected Historical Financial Information

(in thousands of dollars, except share data)

 

     Nine Months Ended
September 30,
   

Year Ended

December 31,

2006

   

Period from
July 22, 2005
(Inception) to
December 31,

2005

 
     2007     2006      
     (unaudited)     (unaudited)              

Statements of Operations:

        

Selling, general & administrative expenses

   $ 686     $ 705     $ 1,101     $ 63  
                                

Loss from operations

     (686 )     (705 )     (1,101 )     (63 )

Dividend and interest income

     3,264       2,898       3,974       118  
                                

Income before provision for income taxes

   $ 2,578     $ 2,193     $ 2,873     $ 55  

Provision for income taxes

     —         —         3       1  
                                

Net income

   $ 2,578     $ 2,193     $ 2,870     $ 54  

Accretion of trust fund relating to common stock subject to possible conversion

     652       580       794       24  
                                

Net income available to common stockholders

   $ 1,926     $ 1,613     $ 2,076     $ 30  
                                

Weighted average basic shares outstanding

     16,678,713       16,668,470       16,668,534       4,670,245  
                                

Weighted average diluted shares outstanding

     16,748,738       16,668,470       16,668,534       4,670,245  
                                

Basic income per share

   $ 0.12     $ 0.10     $ 0.12     $ 0.01  
                                

Diluted income per share

   $ 0.11     $ 0.10     $ 0.12     $ 0.01  
                                
    

September 30,

    December 31,  
     2007     2006     2006     2005  
     (unaudited)     (unaudited)              

Balance Sheet Data:

        

Total assets

   $ 128,938     $ 124,822     $ 125,546     $ 113,640  

Total current liabilities

     1,074       214       260       64  

Common stock subject to possible conversion

     25,674       24,808       25,022       22,461  

Stockholders’ equity

     102,190       99,800       100,264       91,115  
     Nine Months Ended
September 30,
   

Year Ended

December 31,

2006

   

Period from
July 22, 2005
(Inception) to
December 31,

2005

 
     2007     2006      
     (unaudited)     (unaudited)              

Cash Flow Data:

        

Cash Flow from (used in) operations

   $ 2,721     $ 2,462     $ 3,137     $ (68 )

Cash Flow used in investing activities

     (3,261 )     (11,740 )     (12,809 )     (112,308 )

Cash Flow from financing activities

     475       8,840       8,694       113,521  
                                

Net change in cash

     (65 )     (438 )   $ (978 )   $ 1,145  
                                

 

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Non-GAAP Financial Measures

Use of EBITDA

Endeavor believes that EBITDA provides relevant and useful information for analysts and investors as a non-GAAP operating performance measure. In particular, EBITDA is one of the key measures used by Endeavor with respect to the proposed acquisition in the valuation of American Apparel as described in the sections of this proxy statement entitled “The Acquisition Proposal—Endeavor’s Board of Directors’ Reasons for Approval of the Acquisition.” In addition, EBITDA is an important valuation tool used by potential investors when assessing the relative performance of a company in comparison to other companies in the same industry.

American Apparel presents EBITDA because it believes it provides an important measure of its financial performance. American Apparel defines EBITDA as net income (loss) before:

 

   

interest expense;

 

   

income taxes; and

 

   

depreciation and amortization.

American Apparel’s management uses EBITDA as an important financial measure to assess American Apparel’s operating performance. American Apparel’s management believes that the presentation of EBITDA included in this proxy statement provides a supplementary non-GAAP operating performance measure to assist readers with the overall evaluation of operating performance and also to assist in the review of results of operations for planning and forecasting certain operations in future periods. The presentation also provides a measurement which industry analysts use when evaluating operating performance and to allow comparisons of operating performance to that of competitors. EBITDA will also be useful for calculating bonuses to be paid to management.

Although American Apparel uses EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as EBITDA, including the difficulty associated with using it as the sole measure to compare the results of one company to another and the inability to analyze significant items that directly affect a company’s net income (loss) or operating income because of the following material limitations:

 

   

“It does not include interest expense. Because AAI borrowed money to finance its operations, interest expense is a necessary and ongoing part of its costs and has assisted in generating revenue. Therefore, any measure that excludes interest has material limitations.”

 

   

“It does not include taxes. Because the payment of taxes is a necessary and ongoing part of operations, any measure that excludes taxes has material limitations.”

 

   

“It does not include depreciation and amortization expense. Because AAI uses capital assets, depreciation and amortization expense is a necessary element of costs and ability to generate revenue. Therefore, any measure that excludes depreciation and amortization expense has material limitations.”

American Apparel’s management compensates for these limitations in considering EBITDA in conjunction with its analysis of other GAAP financial measures, such as net income (loss).

Since AAI has previously reported non-GAAP segment results to Endeavor’s management and the investment community, we believe the inclusion of non-GAAP numbers provides consistency in financial reporting. Lastly, an investor or potential investor may find any one or all these items important in evaluating AAI’s performance, its results of operations and financial position. Management compensates for the limitations of using non-GAAP financial measures by using them only to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting AAI’s business.

 

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Table of Contents

Reconciliation of AAI’s EBITDA

The following table presents a reconciliation of the AAI’s EBITDA to its net income, the most directly comparable GAAP financial measure, on a historical basis, for the periods presented:

 

    

Nine Months Ended

September 30,

    Year Ended December 31,
     2007    2006     2006     2005    2004    2003     2002
     (unaudited)    (unaudited)     (unaudited)     (unaudited)    (unaudited)    (unaudited)     (unaudited)

Net income (loss)

   $ 11,581    $ (185 )   $ (1,624 )   $ 3,583    $ 6,323    $ 5,988     $ 1,666

Income taxes

     4,725      959       1,335       392      1,019      (379 )     13

Interest expense

     12,255      7,869       10,797       6,258      1,928      855       671

Depreciation and amortization

     8,057      7,299       9,430       5,370      2,206      1,072       478
                                                   

EBITDA

   $ 36,618    $ 15,942     $ 19,938     $ 15,603    $ 11,476    $ 7,536     $ 2,828
                                                   

Reconciliation of the CI companies’ EBITDA

The following tables present a reconciliation of the CI companies’ EBITDA to their net income, the most directly comparable GAAP financial measure, on a historical basis, for the periods presented:

 

     Nine Months Ended September 30,
     2007    2007    2006    2006
     CDN $    USD $    CDN $    USD $
     (unaudited)    (unaudited)    (unaudited)    (unaudited)

Net Income

   $ 959    $ 871    $ 117    $ 104

Income taxes

     812      735      259      228

Interest expense

     991      899      803      708

Depreciation and amortization

     1,363      1,236      1,181      1,043
                           

EBITDA

   $ 4,125    $ 3,741    $ 2,360    $ 2,084
                           

 

    Year Ended December 31,
    2006     2006     2005     2005     2004   2004   2003   2003   2002   2002
    CDN $     USD $     CDN $     USD $     CDN $   USD $   CDN $   USD $   CDN $   USD $
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)

Net income (loss)

  $ (89 )   $ (78 )   $ (7 )   $ (6 )   $ 111   $ 85   $ 559     400     225   $ 143

Income taxes

    271       239       138       112       71     55     288     206     140     89

Interest expense

    1,151       1,014       642       520       343     264     125     90     47     30

Depreciation and amortization

    1,611       1,420       1,093       885       378     291     67     48     37     24
                                                                   

EBITDA

  $ 2,944     $ 2,595     $ 1,866     $ 1,511     $ 903   $ 695   $ 1,039   $ 744   $ 449   $ 286
                                                                   

 

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Table of Contents

Selected Unaudited Pro Forma Combined Financial Information

The acquisition will be accounted for as a “reverse merger” and recapitalization since the stockholders of American Apparel will own a majority of the outstanding shares of the common stock immediately following the completion of the transaction. American Apparel will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of American Apparel. Accordingly, the assets and liabilities and the historical operations that will be reflected in the Endeavor financial statements after consummation of the acquisition will be those of American Apparel and will be recorded at the historical cost basis of American Apparel. Endeavor’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of American Apparel upon consummation of the acquisition.

We have presented below selected unaudited pro forma condensed combined financial information that reflects recapitalization accounting and is intended to provide you with a better picture of what Endeavor’s businesses might have looked like had AAI, the CI companies and Endeavor actually been combined as of the periods indicated. You should not rely on the selected unaudited pro forma condensed combined financial information as being indicative of the historical results that would have occurred had the companies been combined or the future results that may be achieved after the acquisition. The following selected unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes thereto included elsewhere in this proxy statement.

We are providing this information to aid you in your analysis of the financial aspects of the acquisition. The following unaudited selected pro forma condensed combined statement of operations combines Endeavor’s historical statement of operations for the nine months ended September 30, 2007 and the year ended December 31, 2006 with those of AAI and the CI companies for the nine months ended September 30, 2007 and the year ended December 31, 2006, in each case giving effect to the acquisition as if it had occurred on January 1, 2006. The following unaudited selected pro forma condensed combined balance sheet combines Endeavor’s historical balance sheet and those of AAI and the CI companies as of September 30, 2007, giving effect to the transactions described in the Acquisition Agreement as if they had occurred on September 30, 2007.

The unaudited pro forma adjustments are based upon available information and assumptions that we believe are directly attributable to the transaction and are factually supportable. The unaudited pro forma condensed combined statements of operations and the pro forma condensed combined balance sheet do not purport to represent the results of operations that would have occurred had such transactions been consummated on the dates indicated or the financial position for any future date or period.

The following information, which is included elsewhere in this proxy statement, should be read in conjunction with the pro forma condensed combined financial information:

 

   

accompanying notes to the unaudited pro forma condensed combined information;

 

   

separate historical consolidated financial statements of AAI and the CI companies for the years ended December 31, 2006 and December 31, 2005 as well as unaudited for the year ended December 31, 2004.

 

   

separate historical financial statements of Endeavor for the year ended December 31, 2006;

 

   

separate historical unaudited consolidated financial statements of AAI and the CI companies for the nine months ended September 30, 2007; and

 

   

separate historical unaudited financial statements of Endeavor for the nine months ended September 30, 2007.

 

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The following selected financial data is derived from the pro forma condensed combined financial statement included elsewhere in this proxy statement, which has been prepared using four different assumptions with respect to the number of outstanding shares of Endeavor stock and cash immediately following the acquisition, as follows:

 

   

assuming no conversions and Mr. Charney consummates the Lim Buyout—this presentation assumes that no stockholders of Endeavor seek to convert their shares into a pro rata share of the trust account and Mr. Charney purchases all of Mr. Lim’s equity interest in the American Apparel companies using his own resources;

 

   

assuming maximum conversions and Mr. Charney consummates the Lim Buyout—this presentation assumes stockholders of Endeavor owning approximately 19.99% of the stock sold in Endeavor’s initial public offering seek conversion and Mr. Charney purchases all of Mr. Lim’s equity interest in the American Apparel companies using his own resources;

 

   

assuming no conversions and Endeavor consummates the Lim Buyout—this presentation assumes that no stockholders of Endeavor seek to convert their shares into a pro rata share of the trust account and Endeavor purchases all of Mr. Lim’s equity interest in the American Apparel companies using a portion of the trust fund (estimated at approximately $67.8 million assuming a closing on December 14, 2007); and

 

   

assuming maximum conversions and Endeavor consummate the Lim Buyout—this presentation assumes stockholders of Endeavor owning approximately 19.99% of the stock sold in Endeavor’s initial public offering seek conversion and Endeavor purchases all of Mr. Lim’s equity interest in the American Apparel companies using a portion of the trust fund (estimated at approximately $67.8 million assuming the acquisition closes on December 14, 2007).

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

ASSUMING LIM BUYOUT EFFECTED BY MR. CHARNEY

SEPTEMBER 30, 2007

(in thousands of dollars, except per share data)

 

   

American
Apparel,

Inc.

  American
Apparel
Canada
  American
Apparel
Canada
 

Inter-

company
Eliminations

    Combined
AA Companies
(AAI & CI)
  Endeavor
Acquisition
Corp.
 

Pro Forma
Adjustments

No

Conversion

    Pro Forma
Combined-No
Conversion
  Pro Forma
Adjustments
Maximum
Allowable
Conversion
    Pro Forma
Combined
Maximum
Allowable
Conversion
    USD $   CDN $   USD $   USD $     USD $   USD $   USD $     USD $   USD $     USD $

Total assets

  $ 182,956   $ 17,500   $ 17,642   $ (1,316 )   $ 199,282   $ 128,938   $ (16,782 )   $ 311,438   $ (25,674 )   $ 285,764
                                                                 

Current Liabilities

    50,763     8,471     8,539     (1,150 )     58,152     1,074     (14,188 )     45,038     —         45,038

Long-term debt, net of current portion

    102,106     5,004     5,045     —         107,151     —       (4,556 )     102,595     —         102,595

Capital lease obligations, net of current portion

    3,681     —       —       —         3,681     —       —         3,681     —         3,681

Deferred rent

    7,677     878     885     —         8,562     —       —         8,562     —         8,562

Total stockholders’ equity

    18,729     3,147     3,173     (166 )     21,736     127,864     1,962       151,562     (25,674 )     125,888
                                                                 

Total liabilities and stockholders’ equity

  $ 182,956   $ 17,500   $ 17,642   $ (1,316 )   $ 199,282   $ 128,938   $ (16,782 )   $ 311,438   $ (25,674 )   $ 285,764
                                                                 

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

ASSUMING LIM BUYOUT EFFECTED BY MR. CHARNEY

NINE MONTHS ENDED, SEPTEMBER 30, 2007

(in thousands of dollars)

 

    American
Apparel,
Inc.
 

American
Apparel,

Canada

  American
Apparel
Canada
  Intercompany
Eliminations
    Combined
AA Companies
(AAI & CI)
  Endeavor
Acquisition
Corp.
    Pro Forma
Adjustments
No Conversion
    Pro Forma
Combined-No
Conversion
    USD $   CDN $   USD $   USD $     USD $   USD $     USD $     USD $

Net sales

  $ 254,837   $ 33,100   $ 30,017     (9,217 )   $ 275,637   $ —       $ —       $ 275,637

Cost of goods sold

    119,103     12,044     10,922     (9,051 )     120,974     —         —         120,974
                                                     

Gross profit

    135,734     21,056     19,095     (166 )     154,663     —         —         154,663

Selling, general and administrative

    108,270     18,294     16,590     —         124,860     686       —         125,546
                                                     

Income (loss) from operations

    27,464     2,762     2,505     (166 )     29,803     (686 )     —         29,117

Interest and other (income) expense

    11,158     991     899     —         12,057     (3,264 )     (1,531 )     7,262
                                                     

Income (loss) before income taxes

    16,306     1,771     1,606     (166 )     17,746     2,578       1,531       21,855

Income tax provision (benefit)

    4,725     812     735     —         5,460     —         (186 )     5,274
                                                     

Net income (loss)

    11,581     959     871     (166 )     12,286     2,578       1,717       16,581

Accretion of trust fund, relating to Common Stock subject to possible conversion

    —       —       —       —         —       652       —         652
                                                     

Net income (loss) available to common stockholders

  $ 11,581   $ 959   $ 871   $ (166 )   $ 12,286   $ 1,926     $ 1,717     $ 15,929
                                                     

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

ASSUMING LIM BUYOUT EFFECTED BY MR. CHARNEY

YEAR ENDED DECEMBER 31, 2006

(in thousands of dollars)

 

    American
Apparel, Inc.
    American
Apparel
Canada
    American
Apparel
Canada
    Intercompany
Eliminations
    Combined AA
Companies
(AAI & CI)
    Endeavor
Acquisition
Corp.
    Pro Forma
Adjustments
No Conversion
    Pro Forma
Combined-No
Conversion
 
    USD $     CDN $     USD $     USD $     USD $     USD $     USD $     USD $  

Net sales

  $ 264,691     $ 34,658     $ 30,546     $ (10,972 )   $ 284,265     $ —       $ —       $ 284,265  

Cost of goods sold

    138,385       12,852       11,327       (10,790 )     138,922       —         —         138,922  
                                                               

Gross profit

    126,306       21,806       19,219       (182 )     145,343       —         —         145,343  

Selling, general and administrative

    117,006       20,473       18,044       —         135,050       1,101       —         136,151  
                                                               

Income (loss) from operations

    9,300       1,333       1,175       (182 )     10,293       (1,101 )     —         9,192  

Interest and other (income) expense

    9,589       1,151       1,014       —         10,603       (3,974 )     (1,415 )     5,214  
                                                               

Income (loss) before income taxes

    (289 )     182       161       (182 )     (310 )     2,873       1,415       3,978  

Income tax provision (benefit)

    1,335       271       239       —         1,574       3       (2,236 )     (659 )
                                                               

Net income (loss)

    (1,624 )     (89 )     (78 )     (182 )     (1,884 )     2,870       3,651       4,637  

Accretion of trust fund, relating to Common Stock subject to possible conversion

    —         —         —         —         —         794       —         794  
                                                               

Net income (loss) available to common stockholders

  $ (1,624 )   $ (89 )   $ (78 )   $ (182 )   $ (1,884 )   $ 2,076     $ 3,651     $ 3,843  
                                                               

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

ASSUMING LIM BUYOUT EFFECTED BY ENDEAVOR

SEPTEMBER 30, 2007

(in thousands of dollars)

 

    American
Apparel, Inc.
  American
Apparel
Canada
  American
Apparel
Canada
  Intercompany
Eliminations
    Combined
AA Companies
(AAI & CI)
  Endeavor
Acquisition
Corp.
  Pro Forma
Adjustments
No Conversion
    Pro Forma
Combined-
No Conversion
  Pro Forma
Adjustments
Maximum
Allowable
Conversion
    Pro Forma
Combined
Maximum
Allowable
Conversion
    USD $   CDN $   USD $   USD $     USD $   USD $   USD $     USD $   USD $     USD $

Total assets

  $ 182,956   $ 17,500   $ 17,642   $ (1,316 )   $ 199,282   $ 128,938   $ (84,622 )   $ 243,598   $ (25,674 )   $ 217,924
                                                                 

Current Liabilities

    50,763     8,471     8,539     (1,150 )     58,152     1,074     (14,188 )     45,038     —         45,038

Long-term debt, net of current portion

    102,106     5,004     5,045     —         107,151     —       (4,556 )     102,595     —         102,595

Capital lease obligations, net of current portion

    3,681     —       —       —         3,681     —       —         3,681     —         3,681

Deferred rent

    7,677     878     885     —         8,562     —       —         8,562     —         8,562

Total stockholders’ equity

    18,729     3,147     3,173     (166 )     21,736     127,864     (65,878 )     83,722     (25,674 )     58,048
                                                                 

Total liabilities and stockholders’ equity

  $ 182,956   $ 17,500   $ 17,642   $ (1,316 )   $ 199,282   $ 128,938   $ (84,622 )   $ 243,598   $ (25,674 )   $ 217,924
                                                                 

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

ASSUMING LIM BUYOUT EFFECTED BY ENDEAVOR

NINE MONTHS ENDED SEPTEMBER 30, 2007

(in thousands of dollars)

 

     American
Apparel,
Inc.
  

American
Apparel,

Canada

   American
Apparel
Canada
   Intercompany
Eliminations
    Combined
AA Companies
(AAI & CI)
   Endeavor
Acquisition
Corp.
    Pro Forma
Adjustments
No Conversion
    Pro Forma
Combined-No
Conversion
     USD $    CDN $    USD $    USD $     USD $    USD $     USD $     USD $

Net sales

   $ 254,837    $ 33,100    $ 30,017      (9,217 )   $ 275,637    $ —       $ —       $ 275,637

Cost of goods sold

     119,103      12,044      10,922      (9,051 )     120,974      —         —         120,974
                                                          

Gross profit

     135,734      21,056      19,095      (166 )     154,663      —         —         154,663

Selling, general and administrative

     108,270      18,294      16,590      —         124,860      686       —         125,546
                                                          

Income (loss) from operations

     27,464      2,762      2,505      (166 )     29,803      (686 )     —         29,117

Interest and other (income) expense

     11,158      991      899      —         12,057      (3,264 )     (1,531 )     7,262
                                                          

Income (loss) before income taxes

     16,306      1,771      1,606      (166 )     17,746      2,578       1,531       21,855

Income tax provision (benefit)

     4,725      812      735      —         5,460      —         (186 )     5,274
                                                          

Net income (loss)

     11,581      959      871      (166 )     12,286      2,578       1,717       16,581

Accretion of trust fund, relating to Common Stock subject to possible conversion

     —        —        —        —         —        652       —         652
                                                          

Net income (loss) available to common stockholders

   $ 11,581    $ 959    $ 871    $ (166 )   $ 12,286    $ 1,926     $ 1,717     $ 15,929
                                                          

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

ASSUMING LIM BUYOUT EFFECTED BY ENDEAVOR

YEAR ENDED, DECEMBER 31, 2006

(in thousands of dollars, except per share data)

 

    American
Apparel,
Inc.
    American
Apparel
Canada
    American
Apparel
Canada
    Intercompany
Eliminations
    Combined
AA Companies
(AAI & CI)
    Endeavor
Acquisition
Corp.
    Pro Forma
Adjustments
No Conversion
    Pro Forma
Combined-No
Conversion
 
    USD $     CDN $     USD $     USD $     USD $     USD $     USD $     USD $  

Net sales

  $ 264,691     $ 34,658     $ 30,546     $ (10,972 )   $ 284,265     $ —         —       $ 284,265  

Cost of goods sold

    138,385       12,852       11,327       (10,790 )     138,922       —         —         138,922  
                                                               

Gross profit

    126,306       21,806       19,219       (182 )     145,343       —         —         145,343  

Selling, general and administrative

    117,006       20,473       18,044       —         135,050       1,101       —         136,151  
                                                               

Income (loss) from operations

    9,300       1,333       1,175       (182 )     10,293       (1,101 )     —         9,192  

Interest and other (income) expense

    9,589       1,151       1,014       —         10,603       (3,974 )     (1,415 )     5,214  
                                                               

Income (loss) before income taxes

    (289 )     182       161       (182 )     (310 )     2,873       1,415       3,978  

Income tax provision (benefit)

    1,335       271       239       —         1,574       3       (2,236 )     (659 )
                                                               

Net income (loss)

    (1,624 )     (89 )     (78 )     (182 )     (1,884 )     2,870       3,651       4,637  

Accretion of trust fund, relating to Common Stock subject to possible conversion

    —         —         —         —         —         794       —         794  
                                                               

Net income (loss) available to common stockholders

  $ (1,624 )   $ (89 )   $ (78 )   $ (182 )   $ (1,884 )   $ 2,076     $ 3,651     $ 3,843  
                                                               

See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

27


Table of Contents

Comparative Per Share Data

The following table sets forth unaudited pro forma combined per share ownership information of AAI, the CI companies and Endeavor after giving effect to the acquisition, assuming both no conversions and maximum conversions by Endeavor stockholders. You should read this information in conjunction with the selected summary historical financial information included elsewhere in this proxy statement, and the historical financial statements of AAI, the CI companies and Endeavor and related notes that are included elsewhere in this proxy statement. The unaudited AAI, the CI companies and Endeavor pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information and related notes included elsewhere in this proxy statement.

The unaudited pro forma combined earnings per share information below does not purport to represent the earnings per share which would have actually occurred had the companies been combined, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of AAI, the CI companies and Endeavor would have actually been had the companies been combined. The numerator used to calculate the per share data for the annual periods ended December 31, 2004 and 2005 were derived from the summary of selected financial information contained in pages 12 through 16 of the proxy statement. For the year ended December 31, 2006 and for the nine months ended September 30, 2007 the numerator used was based on the information contained in the pro forma financials on pages 95 through 114 of the proxy statement. The denominator used to calculate diluted earnings per share for all periods presented include warrants aggregating 16,160,745 and options aggregating 700,000.

 

    December 31,    

Nine Months
Ended

30-September-07

    2004    2005     2006    

Book value per common share:

        

AAI – Historical

         $ 187.29

CI – Historical ($US)

         $ 1,851.28

Endeavor – Historical – commenced operations July 22, 2005

         $ 6.13

Pro forma book value per share assuming Mr. Charney effects the Lim buyout:

        

Assuming no conversions

         $ 2.65

Assuming maximum conversions

         $ 2.33

Pro forma book value per share assuming Endeavor effects the Lim buyout:

        

Assuming no conversions

         $ 1.46

Assuming maximum conversions

         $ 1.08

Net Income (loss) per common share – Basic and Diluted:

        

AAI – Historical – Basic and diluted

  $ 63.23    $ 35.83     $ (16.24 )   $ 115.81

CI – Historical – Basic and diluted ($US)

  $ 85.00    $ (3.51 )   $ (45.61 )   $ 433.33

Endeavor – Historical – basic (commenced operations July 22, 2005)

    n/a    $ 0.01     $ 0.12     $ 0.12

Endeavor – Historical – diluted (commenced operations July 22, 2005)

    n/a    $ 0.01     $ 0.12     $ 0.11

Basic pro forma net income per share assuming Mr. Charney effects the Lim buyout:

        

Assuming no conversions

  $ 0.09    $ 0.05     $ 0.07     $ 0.28

Assuming maximum conversions

  $ 0.10    $ 0.05     $ 0.07     $ 0.30

Diluted pro forma net income per share assuming Mr. Charney effects the Lim buyout:

        

Assuming no conversions

  $ 0.07    $ 0.04     $ 0.05     $ 0.22

Assuming maximum conversions

  $ 0.08    $ 0.04     $ 0.05     $ 0.22

Basic pro forma net income per share assuming Endeavor effects the Lim buyout:

        

Assuming no conversions

  $ 0.09    $ 0.05     $ 0.07     $ 0.28

Assuming maximum conversions

  $ 0.10    $ 0.05     $ 0.07     $ 0.30

Diluted pro forma net income per share assuming Endeavor effects the Lim buyout:

        

Assuming no conversions

  $ 0.07    $ 0.04     $ 0.05     $ 0.22

Assuming maximum conversions

  $ 0.08    $ 0.04     $ 0.05     $ 0.22

Cash dividends per share:

        

AAI – Historical

  $ 3.13    $ 29.90     $ 6.96     $ 45.22

CI – Historical ($US)

  $ —      $ —       $ —       $ —  

Endeavor – Historical – commenced operations July 22, 2005

  $ —      $ —       $ —       $ —  

Pro forma weighted average shares of common stock outstanding (In thousands):

        

Basic pro forma weighted average shares outstanding assuming Mr. Charney effects the Lim buyout:

        

Assuming no conversions

    57,168      57,168       57,168       57,168

Assuming maximum conversions

    53,937      53,937       53,937       53,937

Diluted pro forma weighted average shares outstanding assuming Mr. Charney effects the Lim buyout:

        

Assuming no conversions

    74,030      74,030       74,030       74,030

Assuming maximum conversions

    70,797      70,797       70,797       70,797

Basic pro forma weighted average shares outstanding assuming Endeavor effects the Lim buyout:

        

Assuming no conversions

    57,168      57,168       57,168       57,168

Assuming maximum conversions

    53,937      53,937       53,937       53,937

Diluted pro forma weighted average shares outstanding assuming Endeavor effects the Lim buyout:

        

Assuming no conversions

    74,030      74,030       74,030       74,030

Assuming maximum conversions

    70,797      70,797       70,797       70,797

 

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Table of Contents

RISK FACTORS

You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you decide whether to vote or instruct your vote to be cast to adopt the acquisition proposal.

Risks Related to Endeavor’s Business and Operations

Following the Acquisition of American Apparel

The value of your investment in Endeavor following consummation of the acquisition will be subject to the significant risks inherent in operating in the retail apparel market, as well as risks that may arise in connection with the integration of the various companies. You should carefully consider the risks and uncertainties described below and other information included in this proxy statement. If any of the events described below occur, Endeavor’s post-acquisition business and financial results could be adversely affected in a material way. This could cause the trading price of its common stock to decline, perhaps significantly, and you therefore may lose all or part of your investment.

We must successfully gauge fashion trends and changing consumer preferences in order to succeed generally and to effectively manage our inventory.

Our success will be largely dependent upon our ability to gauge the fashion tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner. The retail apparel business fluctuates according to changes in consumer preferences dictated, in part, by fashion and season. To the extent we misjudge the market for our merchandise or the products suitable for our market, our sales will be adversely affected and the markdowns required to sell the resulting excess inventory will adversely affect our operating results. Some of our past product offerings have not been well received by our customer base. Merchandise misjudgments could have a material adverse effect on our image with our customers and on our operating results. Fluctuations in the apparel retail market affect the inventory owned by apparel retailers, since merchandise usually must be manufactured in advance of the season and frequently before fashion trends are evidenced by customer purchases. In addition, the cyclical nature of the retail apparel business will require us to carry a significant amount of inventory, especially prior to peak selling seasons when we build up our inventory levels. As a result, we will be vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise production. If sales do not meet expectations, too much inventory may cause excessive markdowns and, therefore, lower than planned margins.

Our business will be highly competitive and our market share may be adversely impacted at any time by the significant number of competitors in our industry.

The retail apparel industry, in general, and the imprintable apparel market, specifically, are fragmented and highly competitive. Prices of certain products we manufacture, particularly t-shirts, are determined based on market conditions, including the price of raw materials. There can be no assurance that we will be able to compete successfully in the future. We will compete with national and local department stores, specialty and discount store chains, independent retail stores and Internet businesses that market similar lines of merchandise. We will face a variety of competitive challenges, including:

 

   

anticipating and quickly responding to changing consumer demands;

 

   

maintaining favorable brand recognition and effectively marketing our products to consumers in several diverse market segments;

 

   

developing innovative, high-quality products in sizes, colors and styles that appeal to consumers;

 

   

sourcing raw materials and manufacturing merchandise efficiently;

 

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Table of Contents
   

competitively pricing our products and achieving customer perception of value;

 

   

providing strong and effective marketing support; and

 

   

maintaining high levels of consumer traffic to our retail stores.

We will also face competition in European, Asian and Canadian markets from established regional and national chains. Our success in these markets depends on determining a sustainable profit formula to build brand loyalty and gain market share in these challenging retail environments.

Purchases of retail apparel merchandise are generally discretionary and therefore are particularly susceptible to decline in poor economic conditions.

The outlook for the United States and world economy is uncertain and is directly affected by global factors that are beyond our control. Such factors include disposable consumer income, oil prices, recession and fears of recession, war and fears of war, terrorist attacks, inclement weather, consumer debt, interest rates, sales tax rates, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security. Consumers are generally more willing to make discretionary purchases, including purchases of fashion products, during periods in which favorable economic conditions prevail. If economic conditions change, our business, financial condition and results of operations could be adversely affected. We cannot predict the indirect effects such as rising oil and freight prices, consumer spending or other economic factors such as natural disasters will have on our results of operations.

Our growth strategy relies in part on the opening of new stores and the remodeling of existing stores each year, which may strain our resources and adversely impact the performance of our existing store base.

Our growth strategy depends in part on the opening of new American Apparel retail stores, the remodeling of existing stores in a timely manner and the operation of these stores in a cost-efficient manner. Successful implementation of this portion of our growth strategy depends on a number of factors including, but not limited to, our ability to:

 

   

obtain suitable store locations and negotiate acceptable leases for these locations;

 

   

complete store design and remodeling projects on time and on budget;

 

   

supply our stores with proper types and quantities of merchandise; and

 

   

hire and train qualified store managers and sales people.

Additionally, new stores that we open may place increased demands on our existing financial, operational, managerial and administrative resources, which could cause us to operate less effectively. Furthermore, it is possible that by opening a new store in an existing market, we could adversely affect the previously existing stores in that market by drawing away foot traffic from the previously existing store.

Expanding our business internationally is an important part of our overall growth strategy and our success in this regard is subject to numerous risks, any of which could delay or prevent successful penetration into international markets.

As we expand internationally, we will need to effectively and efficiently open and operate stores in international locations. Our international growth will be limited unless we can:

 

   

identify suitable markets and sites for store locations;

 

   

negotiate acceptable lease terms;

 

   

hire, train and retain competent store personnel;

 

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gain acceptance from foreign customers;

 

   

manage inventory effectively to meet the needs of new and existing stores on a timely basis;

 

   

expand infrastructure to accommodate growth;

 

   

generate sufficient operating cash flows or secure adequate capital on commercially reasonable terms to fund our expansion plan;

 

   

manage foreign exchange risks effectively;

 

   

address existing and changing legal, regulatory and political environments in target foreign markets; and

 

   

manage international growth, if any, in a manner that does not unduly strain our financial, operating and management resources.

We anticipate that we will incur significant costs related to starting up and maintaining additional foreign operations. Costs may include, and will not be limited to, obtaining prime locations for stores, setting up foreign offices and distribution facilities and hiring experienced management.

We expect to experience fluctuations in our comparable store sales and margins, which could make it difficult to gauge our growth at any specific period of time.

Our success will depend, in part, upon our ability to improve sales, as well as gross margins and operating margins, at American Apparel’s existing stores. American Apparel’s comparable store sales have fluctuated significantly in the past on an annual, quarterly and monthly basis, and we expect that they will continue to fluctuate in the future. For example, over the past two years, American Apparel’s quarterly comparable store sales have ranged from an increase of 64.4% in the first quarter of 2005 to an increase of 0.1% in the second quarter of 2006. American Apparel’s comparable store sales in 2006 increased 4.8% from 2005. A variety of factors affect comparable store sales, including fashion trends, competition, current economic conditions, the timing of release of new merchandise and promotional events, changes in our merchandise mix, the success of marketing programs and weather conditions. These factors may cause our comparable store sales results to differ materially from American Apparel’s prior periods and from our expectations. Our ability to deliver strong comparable store sales results and margins will depend in large part on accurately forecasting demand and fashion trends, selecting effective marketing techniques, providing an appropriate mix of merchandise for our customer base, managing inventory effectively, using more effective pricing strategies, and optimizing store performance.

We will be dependent on key personnel, and our ability to grow and compete will be harmed if we do not retain the continued services of such personnel, or we fail to identify, hire and retain additional qualified personnel.

We will be dependent on the efforts of American Apparel’s management team, and the loss of services of one or more members of this team, each of whom have substantial experience in the apparel industry, could have an adverse effect on our business. American Apparel’s senior officers closely supervise all aspects of the American Apparel business, in particular the design and production of merchandise and the operation of the American Apparel stores. If any member of American Apparel’s management leaves, such departure could have an adverse effect on our operations and could adversely affect our ability to design new products and to maintain and grow the distribution channels for our products. The loss of Mr. Charney would be particularly harmful as he is considered intimately connected to American Apparel’s brand identity and is the principal driving force behind American Apparel’s core concepts. In addition, if we experience material growth following the acquisition, we will need to attract and retain additional qualified personnel. The market for qualified and talented design and marketing personnel in the apparel industry is intensely competitive. If we are unable to attract or retain qualified personnel as needed, our growth will be hampered and our operating results could be materially adversely affected.

 

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Cost increases in the materials or labor used to manufacture our products could negatively impact our business and financial condition.

The manufacture of American Apparel’s products is labor intensive and utilizes raw materials supplied by third parties. An important part of American Apparel’s branding and marketing is that its products are made in the United States. The Federal Trade Commission has stated that for a product to be called Made in USA, or claimed to be of domestic origin without qualifications or limits on the claim, the product must be “all or virtually all” made in the U.S. The term “United States” includes the 50 states, the District of Columbia, and the U.S. territories and possessions. “All or virtually all” means that all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no- or negligible—foreign content. American Apparel meets the FTC’s “Made in the USA” standard and from the knitting process to the final sewing of a garment, all of the processes are conducted in the US, either directly by American Apparel in its knitting, manufacturing, dyeing and finishing facilities located in Los Angeles or through local commission knitters, dyers and sewers in the Los Angeles metropolitan area and other regions in the US. If the cost of labor materially increases, our financial results could be materially adversely affected and our ability to compete against companies with lower labor costs could be hampered. Material increases in labor costs in the United States could also force us to move all or a portion of our manufacturing overseas, which could adversely affect the American Apparel brand identity. Similarly, increases in the prices we pay to the suppliers of the raw materials used in the manufacturing of our products could adversely affect our financial condition and ability to compete and could force us to seek to offset increased raw material costs by relocating all or a portion of our manufacturing overseas to locations with lower labor costs.

Unionization of employees at our facilities could result in increased risk of work stoppages and high labor costs.

American Apparel’s employees are not party to any collective bargaining agreement or union. If employees at our manufacturing or distribution facilities were to unionize, our relationship with our employees could be adversely affected. We would also face an increased risk of work stoppages and higher labor costs. Accordingly, unionization of our employees could have a material adverse impact on our operating costs and financial condition and could force us to raise prices on our products, curtail operations and/or relocate all or a portion of our operations overseas.

Many of American Apparel’s workers are documented immigrants and authorized to work in the United States; however, changes in immigration and labor laws could affect such labor force.

Many of American Apparel’s workers are documented immigrants, authorized to work in the United States. Changes to existing U.S. immigration laws or labor laws could affect this labor force and could make it harder for members of such force to remain or legally work in the United States. Any changes in U.S. laws having such an affect could make it harder for American Apparel to maintain and expand its work force, which would be adverse to American Apparel’s manufacturing capabilities and harm American Apparel’s operations and financial results.

Our manufacturing operations will be located in higher-cost geographic locations, placing us at a disadvantage to competitors that have a higher percentage of their operations overseas.

Despite the general industry-wide migration of manufacturing operations to lower-cost locations, such as Central America, the Caribbean Basin and Asia, American Apparel’s textile manufacturing operations are still located in the United States, which is a higher-cost location relative to these offshore locations. In addition, American Apparel’s competitors generally source or produce a greater portion of their textiles from regions with lower costs than American Apparel, which will place us at a cost disadvantage. This can enable our competitors to exert pricing pressure in the industry by using their manufacturing cost savings to reduce prices of their products.

 

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Reliance on third party shippers to deliver merchandise to stores and customers could result in business disruption.

The efficient operation of American Apparel’s stores and wholesale business depends on the timely receipt of merchandise from its distribution centers. Independent third party transportation companies deliver a substantial portion of American Apparel’s merchandise to our stores. These shippers may not continue to ship our products at current pricing or terms. These shippers may employ personnel represented by labor unions. Disruptions in the delivery of merchandise or work stoppages by employees or contractors of these third parties could delay the timely receipt of merchandise. There can be no assurance that such stoppages or disruptions will not occur in the future. Any failure by these third parties to respond adequately to our distribution needs would disrupt our operations and could have a material adverse effect on our financial condition and results of operations.

Elimination of U.S. import protections would eliminate an important barrier to competition with respect to merchandise produced in lower labor cost locations, which could place us at a disadvantage.

Our products will be subject to foreign competition. Foreign producers of apparel often have significant labor cost advantages, which can enable them to sell their products at relatively lower prices. However, in the past, foreign competitors have been faced with significant U.S. government import restrictions. The extent of import protection afforded to domestic apparel producers has been, and is likely to remain, subject to political considerations, and is therefore unpredictable. Given the number of foreign producers, the substantial elimination of import protections that protect domestic apparel producers such as American Apparel could materially adversely affect our business.

Because American Apparel utilizes foreign suppliers and sells into foreign markets, we will be subject to numerous risks associated with international business that could increase our costs or disrupt the supply of its products, resulting in a negative impact on our business and financial condition.

American Apparel’s international operations subject it to risks, including:

 

   

economic and political instability,

 

   

restrictive actions by foreign governments,

 

   

greater difficulty enforcing intellectual property rights and weaker laws protecting intellectual property rights,

 

   

changes in import duties or import or export restrictions,

 

   

fluctuations in currency exchange rates, which could negatively affect profit margins,

 

   

timely shipping of product and unloading of product through West Coast ports, as well as timely truck delivery to American Apparel’s warehouses,

 

   

complications complying with the laws and policies of the United States affecting the importation of goods, including duties, quotas, and taxes, and

 

   

complications in complying with trade and foreign tax laws.

Any of these events or circumstances could disrupt the supply of our products or increase our expenses.

Litigation exposure could exceed expectations and have a material adverse effect on our financial condition and results of operations.

American Apparel is subject to regulatory inquiries, claims and suits that arise in the ordinary course of business and is currently involved in litigation incidental to the conduct of its business. American Apparel is

 

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currently defending two personnel-related claims of harassment, discrimination and/or wrongful termination and a claim of trademark infringement brought by Hanesbrands, Inc. American Apparel’s management believes these matters are generally without merit, but there can be no assurance that we would not incur substantial costs to defend them or substantial liability in the event one or more of these matters are decided against us. We are unable to assess the specific maximum potential financial exposure that could result from these matters. Our estimates of the viability of these claims or the financial exposure in which they could result could change from time to time as the matters proceed through their course, as facts are established and various judicial determinations are made. Should management’s current evaluation that pending matters are without merit prove incorrect, we could have material financial exposure, which would have a material adverse effect upon our financial condition and results of operations. See the section entitled “Business of American Apparel—Legal Proceedings” for a more detailed discussion of American Apparel’s pending litigation.

The process of upgrading American Apparel’s information technology infrastructure may disrupt our operations.

American Apparel has performed an evaluation of its information technology systems and requirements and is in the beginning stages of implementing upgrades to its information technology systems supporting the business. These upgrades will involve replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. There are inherent risks associated with replacing and changing these systems, including accurately capturing data and system disruptions. We believe that American Apparel is taking appropriate action to mitigate the risks through testing, training and staging implementation, as well as securing appropriate commercial contracts with third-party vendors supplying such replacement technologies. Information technology system disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our financial condition and results of operations. Additionally, there is no assurance that a successfully implemented system will produce its intended benefits.

We will have potentially adverse exposure to credit risks on our wholesale sales.

American Apparel is exposed to the risk of financial non-performance by its customers, primarily in its wholesale business. Sales to wholesale customers represented approximately 56% of total sales for the year ended December 31, 2006 and approximately 51% of total sales for the nine months ended September 30, 2007. American Apparel’s extension of credit involves considerable use of judgment and is based on an evaluation of each customer’s financial condition and payment history. American Apparel monitors its credit risk exposure by periodically obtaining credit reports and updated financials on its customers. American Apparel maintains an allowance for doubtful accounts for potential credit losses based upon historical trends and other available information. However, the inability to collect on sales to significant customers or a group of customers could have a material adverse effect on our results of operations.

Our online retail operations will face risks that could have a material adverse effect on its financial condition and results of operations.

Our online retail operations were approximately 7% of sales for the year ending December 31, 2006 and approximately 7% of sales for the nine months ended September 30, 2007 and are subject to numerous risks that could have a material adverse effect on our operational results. Risks include, but are not limited to, the following:

 

   

a diversion of sales from our retail stores, which may impact comparable store sales figures;

 

   

difficulty in recreating the in-store experience on a web site; and

 

   

risks related to the failure of the systems that operate the web sites and their related support systems, including computer viruses, theft of customer information, telecommunication failures and electronic break-ins and similar disruptions.

 

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We will incur significant costs as a result of operating as a public company, our management will be required to devote substantial time to new compliance initiatives and we will be required to remediate our material weakness in American Apparel’s internal control over financial reporting identified by its auditors, which related to American Apparel not having sufficient personnel for its financial reporting responsibilities, which results in the untimely close of its books and records and preparation of financial statements and related disclosures.

While we are a public company, our compliance costs to date have not been substantial in light of our limited operations. American Apparel has never operated as a public company. As a public company with substantial operations, we will incur increased legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the American Stock Exchange, have imposed various new requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

In addition, the Sarbanes-Oxley Act requires, among other things, that we report on the effectiveness of our internal control over financial reporting and disclosure controls and procedures. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. After the acquisition, the added complexity and geographical scope of our operations will substantially increase our costs in complying with Section 404. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. Additionally, American Apparel’s auditors have identified certain deficiencies in American Apparel’s internal control over financial reporting that will need to be remedied. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues current management has. If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the American Stock Exchange.

American Apparel has significant indebtedness and a failure to generate significant cash flow could render it unable to service such obligations.

As of September 30, 2007, American Apparel had aggregate indebtedness of approximately $124.7 million. Approximately 42% of this aggregate indebtedness of $124.7 million bears variable interest rates (which ranges from 4.6% to 24%). American Apparel’s ability to service this indebtedness will be dependent on its ability to generate cash from internal operations sufficient to make required payments on such indebtedness. American Apparel’s business may not generate sufficient cash flow from operations and future borrowings may not be available to American Apparel under these facilities in an amount sufficient to enable American Apparel to pay this indebtedness and fund operating and liquidity requirements prior to the closing of the acquisition. American Apparel may need to refinance all or a portion of this indebtedness on or before maturity. However, American Apparel may not be able to refinance any of this indebtedness on commercially reasonable terms, or at all. On July 2, 2007, American Apparel obtained an additional $10 million secured debt financing with the same private investment firm which provided $41 million in financing under a term loan agreement in January 2007. On July 2, 2007 American Apparel also replaced its secured revolving credit facility of $62.5 million with an increased revolving credit facility of $75 million from a new bank, which expires on the earlier of July 2, 2012 or thirty days prior to the maturity date of the loan agreement with the private investment firm (January 18, 2009) unless it is refinanced on terms acceptable to the bank in December 2008. Borrowings under the new facility are subject to certain advance provisions established by the bank and are collateralized by substantially all of the assets of American Apparel.

 

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Interest costs paid by American Apparel would increase if interest rates increase.

Approximately 42% of the debt of AAI at September 30, 2007 was at a variable rate. In the event that interest rates rise, the result would be higher interest costs at AAI. Approximately 83% of the debt of CI at September 30, 2007 was at a variable rate (ranging from Canadian Prime Rate + 1% to 18%). In the event that interest rates rise, CI will incur higher interest costs.

Failure of American Apparel to remain in compliance with certain financial covenants under its financing arrangements could result in the acceleration of its debt repayment obligations.

The financing agreements between AAI and its lenders contain certain financial covenants relating to AAI’s fixed charge coverage ratio, annual capital expense limitations, minimum EBITDA, debt to EBITDA ratios and adjusted debt to EBITDA ratios. Failure of American Apparel to maintain compliance with any of these financial covenants can result in an increase in the interest rate payable under the financing arrangements or acceleration of the outstanding debt in its entirety and may adversely effect the ability of American Apparel to obtain additional financing that may be necessary to effectively grow the business going forward. Prior to July 2, 2007, AAI was in non-compliance under its then existing financing agreements, failing to meet the senior debt to EBITDA ratio test under its revolving credit facility and failing to satisfy the minimum EBITDA test for 2006 as well as the minimum EBITDA test and the maximum senior debt to EBITDA ratio test for the first quarter of 2007 under its term loan agreement with a private investment firm. On July 2, 2007, AAI replaced its existing revolving credit facility with a revolving credit facility agreement with a new bank and the private investment firm agreed to waive past defaults and reset the financial covenants under AAI’s term loan agreement. As of September 30, 2007 AAI failed to meet the provisions of certain debt covenants relating to AAI’s outstanding indebtedness and transactions with affiliates as set forth in its credit facility agreements and term loan agreement. During November 2007, AAI obtained waivers from its bank and private investment firm for the violations of these covenants. As of the date hereof, AAI is in compliance with all of the financial covenants under each of these financing agreements.

The financing agreement among the CI companies and their lender contain certain financial covenants relating to working capital requirements and debt to net worth ratios. Failure to maintain compliance with those financial covenants may result in additional fees being assessed against the CI companies or acceleration of the outstanding debt in its entirety and may adversely effect the ability of the CI companies to continue operations. At September 30, 2007 and as of the date hereof, the CI companies were not in compliance with the financial covenants of their financing agreement, failing to meet the minimum net working capital test and debt to tangible net worth ratio test. The bank has waived compliance with the obligation to meet these covenants as at September 30, 2007.

Substantially all of American Apparels’ assets are used to collateralize its credit facilities, certain term loans and equipment leasing agreements

Substantially all of American Apparel’s assets are used to collateralize its credit facilities, certain term loans and equipment leasing agreements. As of September 30, 2007, these credit facilities consist of AAI’s revolving credit facility of $75 million, which is secured by substantially all assets of AAI including cash, inventory and accounts receivable as well as the CI Companies’ line of credit facility of $4.5 million, which is secured the CI Companies’ accounts receivable, inventory and all other moveable assets. AAI’s term loan agreement with a private investment firm of $61 million also uses substantially all assets of AAI as collateral and names the private investment firm a second lien lender. All of these debt agreements contain various covenants that require the AAI and CI Companies to maintain certain financial ratios and commitments as defined by the agreements. All leasing agreements are collateralized by equipment provided by the leasing arrangement.

In the event of the default on these agreements, substantially all of the assets of AAI and CI Companies would be subject to liquidation by the creditors, which may result in no assets being left available to the stockholders.

 

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American Apparel is currently being audited by government tax agencies regarding its operating activities in previous periods which may result in an assessment of a material amount, the payment of which may adversely impact American Apparel’s financial conditions and operations.

As of September 30, 2007, American Apparel is being audited by Federal and State agencies in regards to sales and income taxes for certain previous years. At this time, no assessments have been issued and American Apparel cannot quantify what impact these audits may have, if any. Therefore no provisions have been set up in the accounts of American Apparel.

American Apparel may not be able to achieve its estimate of $75 million of EBITDA in 2008.

There may be several factors that could cause American Apparel to not achieve its estimated 2008 EBITDA including lower sales and insufficient funding that would reduce the number of stores expected to be opened. Lower same store sales growth in 2008 would reduce the cash being generated for working capital. The final amount of funds available to American Apparel from the merger to support its expansion plans is dependant on the number of shareholders that vote against the merger. A large negative vote would severely impact American Apparel’s expansion plans. Unexpected operational or expansion costs would reduce the funds available for further expansion. These possibilities would reduce the number of new stores to be opened in 2008 and thus reducing the EBITDA.

Investors evaluating the proposals described in this proxy statement will not have, prior to the special meeting, certain information relating to compensation arrangements for the officers, directors and employees of the combined companies.

Significant compensation decisions will be made by Endeavor’s board of directors and compensation committee going forward after the acquisition, as generally described in the section entitled “Directors and Executive Officers of Endeavor Following the Acquisition - Executive Compensation.” While it is generally anticipated that American Apparel’s current officers and employees (other than Mr. Lim) will continue in the same or substantially the same capacities with American Apparel after the acquisition, none of them, other than Mr. Charney, is entering into a new employment agreement in connection with the acquisition. Accordingly, their compensation arrangements will be subject to review and change from time to time, including in the near term, by the board of Endeavor and its compensation committee following the acquisition. Although the board of directors and compensation committee will have a fiduciary duty to make fair and reasonable compensation decisions, future compensation arrangements cannot be currently quantified and therefore investors must recognize the presently indeterminate nature of this factor in their economic analysis of the acquisition and the related proposals discussed in this proxy statement.

Additionally, although it has been agreed among American Apparel and Endeavor that key officers and employees of American Apparel may be granted cash bonuses in connection with the consummation of the acquisition, neither the pool of eligible officers and employees nor individual bonus awards have been determined as of the date hereof. Bonuses in an aggregate amount of $2.5 million shall be awarded to key officers and employees of American Apparel in recognition of the contributions they have made to the successful completion of the acquisition and overall growth of American Apparel. However, specific details of those awards have not yet been determined and cannot be factored into your evaluation of the transaction.

Endeavor’s financial statements contain a statement indicating that its ability to continue as a going concern is dependent on consummation of the acquisition.

As disclosed in the December 31, 2006 financial statements, Endeavor’s cash and working capital were insufficient to fund its operations for the next 12 months. The report of its independent registered public accounting firm on the financial statements includes an explanatory paragraph stating that the ability to continue as a going concern is dependent on the consummation of the acquisition. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As of September 30, 2007, the Company has negative working capital of $944,758, net of $128,374,498 of which is cash held in the Trust Account. On December 18, 2006, the Company entered into an agreement to acquire an operating entity expected to be

 

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consummated in 2007. In order for the Company to continue to fund the operating costs associated with the acquisition, the Company’s officers have agreed to advance the Company enough capital in order to consummate the acquisition. There can be no assurance that the acquisition will be consummated. Should this Business Combination not be consummated, the Company would be required to return the funds held in the Trust Account to holders of shares issued in the Offering, as a mandatory liquidation, pursuant to a plan of dissolution and liquidation approved by stockholders. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The market for real estate in desirable retail store locations is competitive, which could hamper our ability to open new stores.

Our ability to obtain real estate to open new stores in desirable locations depends upon the availability of real estate that meets our criteria, which includes, among other items, projected foot traffic, square footage, demographics and whether we are able to negotiate lease terms that meet our operating budget. In addition, we must be able to effectively renew our existing store leases from time to time. Failure to secure real estate in desirable locations on economically beneficial terms or to renew leases on existing store locations on economically beneficial terms could have a material adverse effect on our results of operations.

Endeavor’s outstanding warrants and options may be exercised in the future, which would increase the number of shares eligible for future resale in the public market and result in dilution to Endeavor’s stockholders.

Outstanding redeemable warrants to purchase an aggregate of 16,160,745 shares of common stock issued in Endeavor’s IPO will become exercisable after the consummation of the acquisition. These will be exercised only if the $6.00 per share exercise price is below the market price of Endeavor’s common stock. On November 1, 2007, the last sale price of a share of Endeavor common stock was $12.30, thereby creating incentive for warrant holders to exercise their warrants. Endeavor also has outstanding options to purchase 350,000 shares of its common stock and other warrants to purchase an additional 350,000 shares of its common stock. Immediately following the closing of the acquisition, assuming no conversions, Endeavor will have 57,168,810 shares outstanding. Giving effect to the foregoing assumptions, as well as the exercise of all of the outstanding warrants and options (and warrants underlying such options), there would be 74,029,555 shares outstanding. This substantial dilution would more than double the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of such shares.

There will be a substantial number of shares of Endeavor’s common stock available for sale in the future that may increase the volume of common stock available for sale in the open market and may cause a decline in the market price of Endeavor’s common stock.

The consideration to be issued in the acquisition to the American Apparel stockholders will include 37,258,065 shares of Endeavor common stock that will be issued at the closing, such shares being subject to downward adjustment based on American Apparel’s net debt. These shares are initially not being registered and will be restricted from public sale under the securities laws. All of these shares will be subject to the lock-up agreement and cannot be sold publicly until the expiration of the restricted period under the lock-up agreements and under Rule 144 promulgated under the Securities Act of 1933. The presence of this additional number of shares of common stock eligible for trading in the public market after the lapse of the restrictions may have an adverse effect on the market price of Endeavor’s common stock.

Endeavor’s working capital will be reduced if Endeavor stockholders exercise their right to convert their shares into cash. This would reduce Endeavor’s cash reserve after the acquisition.

Pursuant to Endeavor’s certificate of incorporation, holders of shares issued in Endeavor’s IPO may vote against the acquisition and demand that we convert their shares calculated as of two business days prior to the anticipated date of the consummation of the acquisition, into a pro rata share of the trust account where a

 

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substantial portion of the net proceeds of the IPO are held. Endeavor and American Apparel will not consummate the acquisition if holders of 3,232,149 or more shares of common stock issued in Endeavor’s IPO exercise these conversion rights. To the extent the acquisition is consummated and holders have demanded to so convert their shares, there will be a corresponding reduction in the amount of funds available to the combined company following the acquisition. As of November 1, 2007, assuming the acquisition proposal is adopted, the maximum amount of funds that could be disbursed to Endeavor’s stockholders upon the exercise of their conversion rights is approximately $25.7 million, or approximately 20% of the funds then held in the trust account. Any payment upon exercise of conversion rights will reduce Endeavor’s cash after the acquisition, which may limit Endeavor’s ability to implement American Apparel’s business plan.

Endeavor will effectively be required to consummate the Lim Buyout instead of Mr. Charney and the cash available to the combined companies for use in operations and expansion will therefore be significantly reduced.

Endeavor will effectively be required to consummate the Lim Buyout instead of Mr. Charney and will purchase all of Mr. Lim’s equity interests in the American Apparel companies for cash in the approximate amount of $67.8 million, assuming a closing date of December 14, 2007. As a result, significantly less money will be available to the combined companies from the trust following consummation of the acquisition for use in the operations of American Apparel, funding American Apparel’s growth strategy and reducing American Apparel’s debt. This could result in American Apparel reducing its expansion efforts and could diminish American Apparel’s ability to replace existing credit facilities or negotiate improved terms thereon.

If Endeavor stockholders fail to vote or abstain from voting on the acquisition proposal, they may not exercise their conversion rights to convert their shares of common stock of Endeavor into a pro rata portion of the trust account as of the record date.

Endeavor stockholders holding shares of Endeavor common stock issued in Endeavor’s IPO who affirmatively vote against the acquisition proposal may, at the same time, demand that we convert their shares into a pro rata portion of the trust account, calculated as of two business days prior to the anticipated date of the consummation of the acquisition. Endeavor stockholders who seek to exercise this conversion right must affirmatively vote against the acquisition and tender their shares (either physically or electronically) to Endeavor’s transfer agent after the special meeting. Any Endeavor stockholder who fails to vote or who abstains from voting on the acquisition proposal or who fails to tender their shares as required may not exercise his or her conversion rights and will not receive a pro rata portion of the trust account for conversion of his or her shares.

If we are unable to maintain listing of Endeavor’s securities on the American Stock Exchange or any stock exchange, it may be more difficult for Endeavor’s stockholders to sell their securities.

Endeavor’s units, common stock and warrants are currently traded on the American Stock Exchange. In connection with the acquisition, it is likely that the American Stock Exchange may require Endeavor to file a new initial listing application and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you that Endeavor will be able to meet those initial listing requirements at that time. If the American Stock Exchange delists Endeavor’s securities from trading on its exchange, and Endeavor is unable to obtain listing on Nasdaq, Endeavor could face significant material adverse consequences, including:

 

   

a limited availability of market quotations for its securities;

 

   

a limited amount of news and analyst coverage for Endeavor;

 

   

a decreased ability to issue additional securities or obtain additional financing in the future; and

 

   

the foregoing factors could lead to reduced market prices for Endeavor’s Common Stock, which could lead to a determination that its common stock is a “penny stock,” which would require brokers trading in its common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for Endeavor’s common stock.

 

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Our ability to request indemnification from American Apparel’s stockholders for damages arising out of the acquisition is limited to those claims where damages exceed $250,000 and are only indemnifiable to the extent that damages exceed $250,000.

At the closing of the acquisition, 8,064,516 shares of Endeavor common stock to be issued to Mr. Charney will be deposited in escrow as the sole remedy for the obligation of the American Apparel stockholders to indemnify and hold harmless Endeavor for any damages, whether as a result of any third party claim or otherwise, and which arise as a result of or in connection with the breach of representations and warranties and agreements and covenants of American Apparel. Claims for indemnification may only be asserted by Endeavor once the damages exceed $250,000 in the aggregate and are indemnifiable only to the extent that damages exceed $250,000. Accordingly, it is possible that Endeavor will not be entitled to indemnification even if American Apparel is found to have breached its representations and warranties contained in the Acquisition Agreement if such breach would only result in damages to Endeavor of less than $250,000.

Endeavor’s current directors and executive officers own shares of common stock that will become worthless if the acquisition is not approved. Consequently, they may have a conflict of interest in determining whether particular changes to the terms of the business combination with American Apparel or waivers of conditions are appropriate.

All of Endeavor’s officers and directors or their affiliates beneficially own stock in Endeavor, which they purchased prior to Endeavor’s IPO. Endeavor’s executives and directors and their affiliates are not entitled to receive any of the cash proceeds that may be distributed upon Endeavor’s liquidation with respect to shares they acquired prior to Endeavor’s IPO. Therefore, if the acquisition is not approved and Endeavor is forced to liquidate, such shares held by such persons will be worthless, as will all of the warrants, and such shares and warrants cannot be sold by them prior to the consummation of the acquisition. In addition, if Endeavor liquidates prior to the consummation of a business combination, Eric Watson and Jonathan Ledecky, Endeavor’s chairman of the board and chief executive officer, respectively, will be personally liable to pay the debts and obligations, if any, to vendors and other entities that are owed money by Endeavor for services rendered or products sold to Endeavor, or to any target business, to the extent such creditors bring claims that would otherwise require payment from moneys in the trust account.

These personal and financial interests of Endeavor’s directors and officers may have influenced their decision to approve the business combination with American Apparel. In considering the recommendations of Endeavor’s board of directors to vote for the acquisition proposal and other proposals, you should consider these interests. Additionally, the exercise of Endeavor’s directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the business combination may result in a conflict of interest when determining whether such changes to the terms of the business combination or waivers of conditions are appropriate and in Endeavor’s stockholders’ best interest.

The Original Agreement has been amended and restated in its entirety by the Acquisition Agreement to provide for certain modifications to the terms of the acquisition, including eliminating EBITDA thresholds that American Apparel was required to meet and increasing the consideration being paid by Endeavor, which required Endeavor’s board to re-evaluate and reaffirm its approval of the transaction. You should base your decision on how to vote on the proposals on the information contained in the definitive proxy statement and not on the information contained in any preliminary proxy statement.

Under the terms of the Original Agreement, a condition to Endeavor consummating the acquisition was that American Apparel had EBITDA of at least $30 million for the year ended December 31, 2006 after giving effect to up to an aggregate of $5 million of adjustments for deferred rent, legal, litigation and workers’ compensation expenses. In April 2007, Endeavor agreed to allow certain adjustments above the original $5 million basket to accommodate an approximate $3.5 million inventory obsolescence reserve established for excess inventory in connection with American Apparel’s December 31, 2006 inventory valuation. In addition, Endeavor waived American Apparel’s breach of the Original Agreement caused by American Apparel’s failure to timely deliver its

 

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financial statements for the year ended December 31, 2006 and also waived compliance with American Apparel’s obligation to deliver projections of EBITDA for 2007 and 2008. In November 2007, the Original Agreement was amended and restated in its entirety by the Acquisition Agreement to affect the foregoing waivers and adjustments and other changes including increasing the aggregate consideration issuable or payable by Endeavor in the acquisition. As a result, Endeavor’s board was required to re-evaluate the acquisition based on these modifications and voted to reaffirm its approval of the transaction. You should base your decision on how to vote on the proposals on the information contained in the definitive proxy statement.

Endeavor’s board did not obtain a fairness opinion with respect to the amended terms of the transaction.

Although the board of directors of Endeavor obtained an opinion that the acquisition was fair from a financial point of view to the Endeavor stockholders under the original terms agreed to in December 2006, it did not obtain a fairness opinion with respect to the amended terms agreed to in October 2007 given existing time constraints and lack of funds held outside of trust and because the board believed that the terms of the amended deal were in line with those upon which the original fairness opinion was obtained. According, there is no third party opinion as to the fairness to Endeavor’s stockholder from a financial point of view of the amended terms of the acquisition for your use in consideration of the acquisition.

If we are unable to complete the business combination with American Apparel and are forced to dissolve and liquidate, third parties may bring claims against us and as a result, the proceeds held in trust could be reduced and the per share liquidation price received by stockholders could be less than $7.97 per share.

As of November 1, 2007, Endeavor held approximately $128.7 million in the trust account, or approximately $7.97 per share of Endeavor common stock issued for the IPO. If we are unable to complete the business combination with American Apparel by December 15, 2007 and are forced to dissolve and liquidate, third parties may bring claims against us. Although we have obtained waiver agreements from the vendors and service providers we have engaged and owe money to, and the prospective target businesses we have negotiated with, whereby such parties have waived any right, title, interest or claim of any kind they may have in or to any monies held in the trust fund, there is no guarantee that they will not seek recourse against the trust fund notwithstanding such agreements. Furthermore, there is no guarantee that a court will uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims that could take priority over those of Endeavor’s public stockholders. Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in Endeavor’s bankruptcy estate and subject to the claims of third parties with priority over the claims of Endeavor’s stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to Endeavor’s public stockholders at least $7.97 per share.

If we do not consummate the business combination with American Apparel by December 15, 2007 and are forced to dissolve and liquidate, payments from the trust account to Endeavor’s public stockholders may be delayed.

If we do not consummate the business combination with American Apparel by December 15, 2007, we will dissolve and liquidate. We anticipate that, promptly after such date, the following would occur:

 

   

Endeavor’s board of directors will convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to Endeavor’s stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out such plan of dissolution and liquidation as well as the board’s recommendation of such plan;

 

   

we will promptly file Endeavor’s preliminary proxy statement with the Securities and Exchange Commission;

 

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if the Securities and Exchange Commission does not review the preliminary proxy statement, then, 10 days following the filing of such preliminary proxy statement, we will mail the definitive proxy statement to Endeavor’s stockholders, and 10 to 20 days following the mailing of such definitive proxy statement, we will convene a meeting of Endeavor’s stockholders, at which they will vote on Endeavor’s plan of dissolution and liquidation; and

 

   

if the Securities and Exchange Commission does review the preliminary proxy statement, we currently estimate that we will receive their comments 30 days after the filing of such proxy statement. We would then mail the definite proxy statement to Endeavor’s stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty, and which may be substantial) and we will convene a meeting of Endeavor’s stockholders at which they will vote on Endeavor’s plan of dissolution and liquidation.

We expect that all costs associated with the implementation and completion of Endeavor’s plan of dissolution and liquidation will be funded by any remaining net assets not held in the trust account, although we cannot assure you that there will be sufficient funds for such purpose. If such funds are insufficient, we anticipate that Endeavor’s management will advance us the funds necessary to complete such dissolution and liquidation (currently anticipated to be no more than approximately $50,000) and not seek reimbursements thereof.

We will not liquidate the trust account unless and until Endeavor’s stockholders approve Endeavor’s plan of dissolution and liquidation. Accordingly, the foregoing procedures may result in substantial delays in Endeavor’s liquidation and the distribution to Endeavor’s public stockholders of the funds in Endeavor’s trust account and any remaining net assets as part of Endeavor’s plan of dissolution and liquidation.

Endeavor’s stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.

If we are unable to complete the business combination with American Apparel, we will dissolve and liquidate pursuant to Section 275 of the DGCL. Under Sections 280 through 282 of the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provisions for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to liquidate the trust account to Endeavor’s public stockholders as part of Endeavor’s plan of dissolution and liquidation, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures. Because we will not be complying with those procedures, we are required, pursuant to Section 281 of the DGCL, to adopt a plan that will provide for Endeavor’s payment, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and (iii) all claims that may be potentially brought against us within the subsequent 10 years. Accordingly, we would be required to provide for any creditors known to us at that time or those that we believe could be potentially brought against us within the subsequent 10 years prior to distributing the funds held in the trust to stockholders. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, Endeavor’s stockholders could potentially be liable for any claims to the extent of distributions received by them in dissolution (but no more) and any liability of Endeavor’s stockholders may extend well beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from Endeavor’s stockholders amounts owed to them by us.

Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that are not dismissed, any distributions received by stockholders in Endeavor’s dissolution might be viewed under applicable debtor/creditor or bankruptcy laws as either a “preferential transfer” or a “fraudulent

 

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conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Endeavor’s stockholders in Endeavor’s dissolution. Furthermore, because we intend to distribute the proceeds held in the trust account to Endeavor’s public stockholders as soon as possible after Endeavor’s dissolution, this may be viewed or interpreted as giving preference to Endeavor’s public stockholders over any potential creditors with respect to access to or distributions from Endeavor’s assets. Furthermore, Endeavor’s board of directors may be viewed as having breached their fiduciary duties to Endeavor’s creditors or may have acted in bad faith, and thereby exposing itself and Endeavor’s company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors or complying with certain provisions of the DGCL with respect to Endeavor’s dissolution and liquidation. We cannot assure you that claims will not be brought against us for these reasons.

Voting control by the combined companies’ executive officers, directors and other affiliates may limit your ability to influence the outcome of director elections and other matters requiring stockholder approval.

Upon consummation of the acquisition, the persons who are parties to the voting agreement, Mr. Charney and the Endeavor Inside Stockholders, will own approximately 71.7% of Endeavor’s voting stock. These persons have agreed to vote for each other’s designees to Endeavor’s board of directors through director elections in 2010. Accordingly, they will be able to control the election of directors and, therefore, Endeavor’s policies and direction during the term of the voting agreement. This concentration of ownership and voting agreement could have the effect of delaying or preventing a change in Endeavor’s control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of Endeavor’s common stock or prevent Endeavor’s stockholders from realizing a premium over the market price for their shares of common stock.

 

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FORWARD-LOOKING STATEMENTS

We believe that some of the information in this proxy statement constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. However, the safe-harbor provisions of that act do not apply to statements made in this proxy statement. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:

 

   

discuss future expectations;

 

   

contain projections of future results of operations or financial condition; or

 

   

state other “forward-looking” information.

We believe it is important to communicate Endeavor’s expectations to Endeavor’s stockholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us or American Apparel in such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.

All forward-looking statements included herein attributable to any of Endeavor, American Apparel or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, Endeavor and American Apparel undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

Before you grant your proxy or instruct how your vote should be cast or vote on the adoption of the proposals, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on Endeavor and American Apparel.

 

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SPECIAL MEETING OF ENDEAVOR STOCKHOLDERS

General

We are furnishing this proxy statement to Endeavor stockholders as part of the solicitation of proxies by Endeavor’s board of directors for use at the special meeting of Endeavor stockholders to be held on December 12, 2007, and at any adjournment or postponement thereof. This proxy statement is first being furnished to Endeavor’s stockholders on or about November     , 2007 in connection with the vote on the acquisition proposal, the certificate of incorporation amendments and performance equity plan proposal. This document provides you with the information you need to know to be able to vote or instruct your vote to be cast at the special meeting.

Date, Time and Place

The special meeting of stockholders will be held on December 12, 2007, at 10:00 a.m., eastern time, at the offices of Graubard Miller, Endeavor’s general counsel, at The Chrysler Building, 405 Lexington Avenue, 19th Floor, New York, New York 10174.

Purpose of the Endeavor Special Meeting

At the special meeting, we are asking holders of Endeavor common stock to:

 

   

approve and adopt the Acquisition Agreement and the transactions contemplated thereby (acquisition proposal);

 

   

approve an amendment to Endeavor’s certificate of incorporation to change Endeavor’s name from “Endeavor Acquisition Corp.” to “American Apparel, Inc.” (name change amendment proposal);

 

   

approve an amendment to Endeavor’s certificate of incorporation to increase the number of authorized shares of Endeavor’s common stock from 75,000,000 to 120,000,000 (capitalization amendment proposal);

 

   

approve an amendment to Endeavor’s certificate of incorporation to remove the preamble and sections A through D, inclusive, of Article Sixth from the certificate of incorporation from and after the closing of the acquisition, as these provisions will no longer be applicable to us, and to redesignate section E of Article Sixth, which relates to the staggered board, as Article Sixth (Article Sixth amendment proposal);

 

   

approve the adoption of the 2007 performance equity plan (performance equity plan proposal) under which 7,710,000 shares shall be reserved for issuance for options and other awards that may be granted thereunder; and

 

   

approve a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if, based upon the tabulated vote at the time of the special meeting, Endeavor is not authorized to consummate the acquisition (adjournment proposal).

Recommendation of Endeavor Board of Directors

Endeavor’s board of directors:

 

   

has unanimously determined that the acquisition proposal and each of the other proposals are fair to and in the best interests of Endeavor and its stockholders;

 

   

has unanimously approved the acquisition proposal and each of the name change amendment, the capitalization amendment, the Article Sixth amendment, the performance equity plan and adjournment proposals;

 

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unanimously recommends that Endeavor’s common stockholders vote “FOR” the acquisition proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the name change amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the capitalization amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the Article Sixth amendment proposal;

 

   

unanimously recommends that Endeavor’s common stockholders vote “FOR” the proposal to approve the performance equity plan; and

 

   

if necessary, unanimously recommends that Endeavor’s common stockholders vote “FOR” the adjournment proposal.

Record Date; Who is Entitled to Vote

We have fixed the close of business on November 16, 2007, as the “record date” for determining the Endeavor stockholders entitled to notice of and to attend and vote at the special meeting. As of November 16, 2007, the record date, there were 19,910,745 shares of Endeavor’s common stock outstanding and entitled to vote. Each share of Endeavor’s common stock is entitled to one vote per share at the special meeting.

Pursuant to agreements with us, the 3,750,000 shares of Endeavor’s common stock held by the Endeavor Inside Stockholders will be voted on the acquisition proposal in accordance with the majority of the votes cast at the special meeting.

Quorum

The presence, in person or by proxy, of a majority of all the outstanding shares of common stock constitutes a quorum at the special meeting. Abstentions and broker non-votes will count as present for purposes of establishing a quorum.

Abstentions and Broker Non-Votes

If you do not give your broker voting instructions, under the rules of the NASD, your broker may not vote your shares on the acquisition proposal, or any of the name change amendment, capitalization amendment, Article Sixth amendment, performance equity plan, or adjournment proposals. Since a stockholder must affirmatively vote against the acquisition proposal to have conversion rights, individuals who fail to vote or who abstain from voting may not exercise their conversion rights. Beneficial holders of shares held in “street name” that are voted against the acquisition may exercise their conversion rights, provided that, within the period specified in a notice they will receive from Endeavor, which period will be not less than 20 days, they either have their shares certificated and deliver the certificates to Endeavor’s transfer agent or deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System. See the information set forth in “Special Meeting of Endeavor Stockholders—Conversion Rights.

Vote of Endeavor’s Stockholders Required

The approval of the acquisition proposal will require the affirmative vote of the holders of a majority of the shares of Endeavor common stock sold in the IPO that are cast at the special meeting. Abstentions and broker non-votes, while considered present for the purpose of establishing a quorum, will have no effect on the acquisition proposal. You cannot seek conversion unless you affirmatively vote against the acquisition proposal.

 

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The name change amendment, the capitalization amendment and the Article Sixth amendment proposals will require the affirmative vote of the holders of a majority of Endeavor common stock outstanding on the record date. Because each of these proposals to amend Endeavor’s charter requires the affirmative vote of a majority of the shares of common stock outstanding, abstentions and shares not entitled to vote because of a broker non-vote will have the same effect as a vote “AGAINST” these proposals. In order to consummate the acquisition, each of the name change amendment and the capitalization amendment proposals must be approved by the stockholders. For both of the name change amendment and the capitalization amendment to be implemented, the acquisition proposal must be approved by the stockholders.

The approval of the performance equity plan and adjournment proposals will require the affirmative vote of the holders of a majority of Endeavor’s common stock represented and entitled to vote at the meeting. Abstentions will have the same effect as a vote “AGAINST” the performance equity plan and adjournment proposals and broker non-votes, while considered present for the purpose of establishing a quorum, will have no effect on the performance equity plan or adjournment proposals.

Endeavor’s initial stockholders who purchased their shares of common stock prior to Endeavor’s IPO, and which include all of Endeavor’s directors and executive officers and their affiliates and are referred to collectively in this proxy statement as the “Endeavor Inside Stockholders,” currently own an aggregate of approximately 18.8% of the outstanding shares of Endeavor common stock. Each of the Endeavor Inside Stockholders has agreed to vote all of the shares they purchased prior to the IPO on the acquisition proposal in accordance with the vote of the majority of the votes cast by the holders of shares issued in the IPO. Accordingly, their vote will have no effect on the outcome of the acquisition proposal. The Endeavor Inside Stockholders also have indicated that they intend to vote such shares in favor of all other proposals being presented at the special meeting. The Endeavor Inside Stockholders also have indicated that they intend to vote any shares they acquire after the IPO for all of the proposals. As of the record date, the Endeavor Inside Stockholders have not acquired any additional shares of Endeavor common stock since the IPO.

Voting Your Shares

Each share of Endeavor common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of Endeavor’s common stock that you own.

There are two ways to vote your shares of Endeavor common stock at the special meeting:

 

   

You can vote by signing and returning the enclosed proxy card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by Endeavor’s board “FOR” the adoption of the acquisition proposal, the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals. Votes received after a matter has been voted upon at the special meeting will not be counted.

 

   

You can attend the special meeting and vote in person. We will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares.

IF YOU DO NOT VOTE YOUR SHARES OF ENDEAVOR’S COMMON STOCK IN ANY OF THE WAYS DESCRIBED ABOVE AGAINST THE ACQUISITION PROPOSAL, SUCH FAILURE WILL NOT HAVE THE EFFECT OF A DEMAND FOR CONVERSION OF YOUR SHARES INTO A PRO RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE PROCEEDS OF ENDEAVOR’S IPO ARE HELD.

 

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Revoking Your Proxy

If you give a proxy, you may revoke it at any time before the vote is taken at the meeting by doing any one of the following:

 

   

you may send another proxy card with a later date;

 

   

you may notify Endeavor (Attention: Martin Dolfi) in writing before the special meeting that you have revoked your proxy; or

 

   

you may attend the special meeting, revoke your proxy, and vote in person, as indicated above.

Who Can Answer Your Questions About Voting Your Shares

If you have any questions about how to vote or direct a vote in respect of your shares of Endeavor’s common stock, you may call Morrow & Co., Inc., Endeavor’s proxy solicitor, at (800) 607-0088, or Martin Dolfi at Endeavor at (212) 683-5350.

No Additional Matters May Be Presented at the Special Meeting

This special meeting has been called only to consider the adoption of the acquisition proposal, the name change amendment, the capitalization amendment, the Article Sixth amendment and the performance equity plan proposals. Under Endeavor’s bylaws, other than procedural matters incident to the conduct of the meeting, no other matters may be considered at the special meeting if they are not included in the notice of the meeting.

Conversion Rights

Any of Endeavor’s stockholders holding shares of Endeavor common stock issued in Endeavor’s IPO as of the record date who affirmatively votes these shares against the acquisition proposal may also demand that we convert his or her shares into a pro rata portion of the trust account calculated as of two business days prior to the anticipated date of the consummation of the acquisition. Any holders seeking such conversion must affirmatively vote against the acquisition proposal. Abstentions and broker non-votes do not satisfy this requirement.

Additionally, holders demanding conversion must continue to hold their shares through the closing of the meeting and then deliver their shares (either physically or electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian System) to our transfer agent within the period specified in a notice they will receive from Endeavor, which period will be not less than 20 days. If you hold the shares in street name, you will have to coordinate with your broker to have your shares certificated or delivered electronically. Shares that have not been tendered (either physically or electronically) in accordance with these procedures will not be converted into cash. If you exercise your conversion rights, then you will be exchanging your shares of our common stock for cash and will no longer own those shares.

The closing price of Endeavor’s common stock on November 16, 2007, the record date, was $12.95 per share and pro rata cash held in the trust account on the record date was approximately $7.97 per share sold in the IPO. Prior to exercising conversion rights, Endeavor’s stockholders should verify the market price of Endeavor’s common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights if the market price per share is higher than the conversion price. We cannot assure Endeavor stockholders that they will be able to sell their shares of Endeavor common stock in the open market, even if the market price per share is higher than the conversion price stated above, as there may not be sufficient liquidity in Endeavor’s securities when its stockholders wish to sell their shares.

If the holders of approximately 3,232,149 or more shares of common stock issued in Endeavor’s IPO (an amount equal to 20% or more of those shares), vote against the acquisition and properly demand conversion of

 

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their shares, we will not be able to consummate the acquisition. In such case, or in any other circumstances in which the acquisition is not completed, shares of holders who demand conversion will not be converted to cash. However, in such circumstances, Endeavor will be dissolved and liquidated and all holders of shares issued in its IPO will receive their pro rata share of amounts in the trust account. Although both the per share liquidation price and the per share conversion price are equal to the amount of trust funds in the trust account divided by the number of shares issued in the IPO, the amount a holder of shares issued in the IPO would receive at liquidation may be greater or less than the amount such a holder would have received had it sought conversion of his shares and Endeavor consummates the acquisition because (i) there will be greater earned interest net of taxes in the trust account at the time of a liquidation distribution since it would occur at a later date than a conversion and (ii) Endeavor may incur expenses it otherwise would not incur if Endeavor consummates the acquisition, including, potentially, claims requiring payment from the trust account by creditors who have not waived their rights against the trust account. Eric Watson, our chairman, and Jon Ledecky, our chief executive officer and a director, will be personally liable under certain circumstances (for example, if a vendor successfully makes a claim against funds in the trust account) to ensure that the proceeds in the trust account are not reduced by the claims of prospective target businesses and vendors or other entities that are owed money by us for services rendered or products sold to us. While Endeavor has no reason to believe that Messrs. Watson and Ledecky will not be able to satisfy those obligations, there cannot be any assurance to that effect. See the section entitled “Other Information Related to Endeavor—Liquidation If No Business Combination” for additional information.

Appraisal Rights

Stockholders of Endeavor do not have appraisal rights in connection the acquisition under the DGCL.

Proxy Solicitation Costs

We are soliciting proxies on behalf of Endeavor’s board of directors. This solicitation is being made by mail but also may be made by telephone or in person. We and our directors and officers may also solicit proxies in person, by telephone or by facsimile or email.

We have hired Morrow & Co., Inc. to assist in the proxy solicitation process. We will pay Morrow & Co., Inc. a fee of approximately $7,000 plus reasonable out-of pocket charges and a flat fee of $3.20 per outbound proxy solicitation call. Such fee will be paid with non-trust account funds.

We will ask banks, brokers and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. We will reimburse them for their reasonable expenses.

Endeavor Inside Stockholders

At the close of business on the record date, the Endeavor Inside Stockholders beneficially owned and were entitled to vote 3,750,000 shares or approximately 18.8% of the then outstanding shares of Endeavor’s common stock, which includes all of the shares held by Endeavor’s directors and executive officers and their affiliates. Among the Endeavor Inside Stockholders is Eric Watson, Endeavor’s current chairman of the board, and Jonathan Ledecky, Endeavor’s current chief executive officer. All of the Endeavor Inside Stockholders have agreed to vote their shares on the acquisition proposal in accordance with the majority of the votes cast by the holders of shares issued in Endeavor’s IPO. The Endeavor Inside Stockholders also have indicated that they intend to vote their Original Shares in favor of all other proposals being presented at the meeting. These Endeavor Inside Stockholders have also indicated they intend to vote any shares they acquired after the IPO for all of the proposals. As of the record date, the Endeavor Inside Stockholders have not acquired any additional shares of Endeavor common stock since the IPO. All of the Endeavor Inside Stockholders also agreed, in connection with the IPO, to place their shares in escrow until December 15, 2008.

 

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THE ACQUISITION PROPOSAL

The discussion in this document of the acquisition and the principal terms of the Acquisition Agreement by and among Endeavor, Merger Sub, each of the American Apparel companies, and the American Apparel stockholders is subject to, and is qualified in its entirety by reference to, the Acquisition Agreement. A copy of the Acquisition Agreement is attached as Annex A to this proxy statement.

General Description of the Acquisition

The Acquisition Agreement provides for a business combination transaction in which:

 

   

American Apparel will merge into the Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of Endeavor and Endeavor changing its name to “American Apparel, Inc.”;

 

   

Endeavor will acquire all of the outstanding capital stock of each of the CI companies, and each such company will become a wholly-owned subsidiary of Endeavor; and

 

   

Merger Sub will be renamed “American Apparel (USA), LLC.” after Closing.

In return for all of the capital stock in each of the American Apparel companies, Mr. Charney will receive from Endeavor an aggregate of 37,258,065 shares of Endeavor common stock, subject to downward adjustment if American Apparel’s net debt at the close of business on the date two business days prior to the Closing is more than $150,000,000. As of September 30, 2007, such net debt was approximately $124.7 million. Accordingly, it is not anticipated that the shares to be issued to Mr. Charney at the Closing of the acquisition will be adjusted downward. See the section entitled “The Acquisition Agreement—Acquisition Consideration—Reduction of Shares Based on Net Debt.

Following the consummation of the acquisition, Endeavor will pay an aggregate of $2.5 million of cash bonuses to key American Apparel officers and employees in recognition of the contributions they have made to the successful completion of the acquisitions and the growth of American Apparel. As of the date of this proxy statement, American Apparel is still reviewing the recommendations of its management team and American Apparel believes that it is premature to include a more definitive breakdown of the awards that may be granted to key personnel. The terms of the Acquisition Agreement require American Apparel to identify those individuals who shall receive cash bonuses, together with the amount of such payments, at or prior to the Closing. In light of this requirement, as well as the ongoing review of the contributions of key personnel to the company, the specific amounts and persons to whom these bonuses will be allocated cannot be set forth herein. See the section entitled “The Acquisition Agreement—Acquisition Consideration.

As a result of the acquisition, and assuming that there is no adjustment to the number of shares issued based on American Apparel’s net debt and that:

 

   

no Endeavor stockholder demands that Endeavor convert its shares to cash as permitted by Endeavor’s certificate of incorporation, Mr. Charney will own approximately 65.2% of the outstanding Endeavor common stock and the current stockholders of Endeavor will own approximately 34.8% of the outstanding Endeavor common stock immediately following the Closing;

 

   

assuming 19.99% of the common stock issued in Endeavor’s initial public offering votes against the acquisition and such stock is converted into cash, Mr. Charney will own approximately 69.1% of the outstanding Endeavor common stock and the current stockholders of Endeavor will own approximately 30.9% of the outstanding common stock of Endeavor immediately following the Closing.

Background of the Acquisition

The Original Agreement was executed by the parties thereto as of December 18, 2006. On November 7, 2007, the Acquisition Agreement, which amends and restates the Original Agreement in its entirety, was executed and made effective by the parties thereto. The terms of the Acquisition Agreement were the result of

 

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arm’s-length negotiations between representatives of Endeavor and American Apparel. The following is a discussion of the background of these negotiations, the Acquisition Agreement and related transactions.

Endeavor was formed on July 22, 2005 to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business. Endeavor completed its IPO on December 21, 2005, raising gross proceeds, including proceeds from the exercise of the underwriters’ over-allotment option, of approximately $129,285,959. Of these proceeds, approximately $121,030,234 were placed in a trust account immediately following the IPO and, in accordance with Endeavor’s certificate of incorporation, will be released either upon the consummation of a business combination or upon the liquidation of Endeavor. As of September 30, 2007, the trust account had $127,374,498 contained therein. Endeavor must liquidate unless it has consummated a business combination by December 21, 2007. As of November 1, 2007, approximately $128.7 million was held in deposit in the trust account.

Promptly following Endeavor’s IPO, Endeavor contacted several investment banks, including Jefferies, private equity firms, consulting firms, legal and accounting firms and numerous business associates. Endeavor did not enter into any agreements with these entities or other parties with respect to the identification of potential acquisition targets other than, in June 2006, retaining Martin Dolfi as a consultant to assist Endeavor’s management with day to day operations and the objectives of the company. The consulting agreement terminates on December 15, 2007 and provides for a base annual fee of $125,000, paid in equal monthly installments. Additionally, the consulting agreement provides that Mr. Dolfi will receive 12,500 shares of Endeavor common stock upon consummation of a business combination and an additional 12,500 shares of Endeavor common stock on the six month anniversary of such closing. Mr. Dolfi is also reimbursed for reasonable out of pocket expenses. Neither Endeavor nor American Apparel has any other agreement or arrangement with any such entities or other parties relating to any finder’s fees to be paid in connection with the acquisition.

Through these efforts, Endeavor identified and reviewed information with respect to more than 100 acquisition opportunities based on the acquisition criteria disclosed in the IPO prospectus that Endeavor developed during the process of completing its IPO. Among these opportunities, Endeavor focused on companies that had the best combination of the following characteristics:

 

   

demonstrated revenue generation,

 

   

compelling growth prospects,

 

   

attractive profit margins (current or potential),

 

   

talented management with an interest in continuing at the company,

 

   

reasonable valuation expectations,

 

   

the ability to deploy capital productively,

 

   

a willingness to operate as a publicly-traded company, and

 

   

an understanding and acceptance of Endeavor’s structure, acquisition process and timing.

As discussed below, Endeavor entered into discussions with several companies that it believed met most or all of the foregoing criteria. It exchanged information with these companies, including business plans and financial information and held bilateral management presentations. Although Endeavor investigated these opportunities in varying depth, none resulted in the execution of any preliminary letter of intent or memorandum of understanding. Endeavor declined to move forward on some opportunities because it did not believe the financial characteristics, business dynamics, management teams, attainable valuations and/or deal structures were suitable. There were also companies that were not interested in pursuing a deal with Endeavor based on its publicly-traded status, capital structure or ability to close with sufficient certainty or speed or which decided to accept competitive bids from other acquirers.

 

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On January 13, 2006, Jon Ledecky, Endeavor’s chief executive officer, met with representatives of an investment banking firm that had no prior relationship with Endeavor to discuss potential transactions that might be available to Endeavor. The investment bankers noted that their company had a relationship with a private equity firm that owned a branded restaurant chain with franchising operations that was headquartered in Los Angeles, California. In February 2006, a preliminary meeting between representatives of Endeavor and this potential target company were schedule for March 2006. On March 11, 2006, Mr. Ledecky met with a representative of the target business in Washington D.C. to discuss a potential transaction and how the target company might be able to grow its operations post-acquisition. In May and June 2006, additional meetings were held among principals of Endeavor, including Mr. Ledecky, principals of the potential target company and principals of the private equity firm that owned such company and information was exchanged between the participants. These meetings resulted in an initial valuation of the target company being set at $125 million. The private equity firm thereafter arranged for Mr. Ledecky and Eric J. Watson, Endeavor’s chairman of the board, to visit the target company’s headquarters in California and conduct due diligence meetings. These meetings occurred on July 2, 3 and 4, 2006. As the process continued, Endeavor was advised by the private equity firm that owned the target company that another private investment firm had made an offer on the target business for cash with a proposed immediate closing. Discussions between Endeavor and this target company were terminated.

On March 14, 2006, Mr. Ledecky met with representatives from the same investment banking firm it met with on January 13, 2006, to discuss additional potential transactions that may be available to Endeavor. The investment bankers noted that a well-known national chain of weight loss centers headquartered in California was for sale by its private equity owners. It was further noted that another investment bank was handling the sale on behalf of the owners and that a formal process for such sale had commenced. This formal process included an existing offering memorandum and the need for any potential bidder to make a qualifying bid to pursue due diligence. At the March 14, 2006 meeting, Mr. Ledecky instructed the investment bank with whom he was meeting to contact the investment bank representing the target company owners to obtain an offering memorandum and to commence structuring a bid to qualify for further due diligence. The preliminary bid communicated to the target company group was in the $600-$650 million range and Endeavor was allowed to proceed with further due diligence. On April 24, 2006, Messrs Ledecky and Watson met with the entire senior management team of the target company and representatives of the target company’s investment bank. Endeavor received a full presentation by senior management and conducted extensive on-site due diligence along with representatives from a large institutional hedge fund willing to co-invest with Endeavor. Mr. Ledecky then held several telephonic meetings with members of the target company’s management team during May 2007. On June 19, 2006, the target company announced that it had agreed to be acquired by one of the leading global conglomerates in the food industry for $600 million.

On July 17, 2006, Mr. Ledecky met with representatives of another investment banking firm that had no prior relationship with Endeavor to discuss potential transactions that might be available to Endeavor. The investment bankers noted they had as a client that is a restaurant chain headquartered in California that had strong regional brand recognition on the West Coast. On August 14, 2006, Mr. Ledecky conducted initial due diligence on the target company and its brand, which included visits to several of the target company’s California locations. On September 9, 2006, Mr. Ledecky met in Dallas, Texas with a representative of the investment bank that had identified the target company to Endeavor and a member of the board of directors of the target company to discuss Endeavor and its structure and information related to Endeavor’s continuing due diligence process. On September 26, 27 and 28, 2006, meeting were held in the target company’s California headquarters between the target company’s entire senior management, Messrs. Ledecky and Watson and representatives of the investment bank . Endeavor proposed the basic terms of a proposed transaction, including an initial valuation of the target company of between $150 million and $200 million. The meetings were adjourned and it was agreed that the target company would consider the proposal. On October 10, 2006, Endeavor was notified by the target company’s investment bankers that the target company did not believe it was well-positioned to make the transition from a private company to a public company. Discussions were then terminated.

 

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On July 18, 2006, Mr. Ledecky met in New York with principal shareholders of a regional ethanol producer headquartered in the Midwestern United States and representatives of the investment banking firm representing the target company. In July 2006, Mr. Edward Mathias, a member of the board of directors of Endeavor, held an additional meeting with one of the principal shareholders of the target company. On July 27, 2006, an additional meeting was in New York among principals of Endeavor, including Mr. Ledecky, a principal shareholder of the target company and members of management of the target company. During the following two weeks, due diligence and valuation discussions were held and a proposed purchase price for the target company in the $150-200 million range was discussed. On August 8, 2006, a meeting was held in New York with a principal shareholder of the target company and representatives of certain investment banks that Endeavor had worked with in connection with other potential targets. The principal shareholder indicated that a purchase price in the $200-250 million range would be necessary to buy the target company. Endeavor, in consultation with the investment bankers determined that this price was not in the best interests of Endeavor. Discussions with the target company were then terminated.

In July 2006, Mr. Ledecky met with Endeavor consultant, Mr. Dolfi, to discuss deal flow. During this meeting between Messrs. Ledecky and Dolfi they discussed the philosophy espoused by Mr. Peter Lynch of “investing in what you know.” Mr. Ledecky then asked for examples of products that Mr. Dolfi used and enjoyed. Mr. Dolfi indicated that he enjoyed the clothing sold at American Apparel. As a way to reinforce the discussion, Mr. Ledecky instructed Mr. Dolfi to research the American Apparel company. Mr. Dolfi returned in August 2006 with a research book presentation on American Apparel. Mr. Ledecky then instructed Mr. Dolfi to determine whether American Apparel had a business development officer. Prior to this time, Mr. Dolfi had never had any contact with American Apparel and there had been no direct or indirect contact between Endeavor and American Apparel. At the time of this meeting, there existed no affiliations or relationships between any of Endeavor’s and American Apparel’s respective officers, directors, stockholders or other affiliates.

Mr. Dolfi placed a preliminary call to American Apparel’s principal offices in Los Angeles, California on September 10, 2006 and was directed to Mr. Adrian Kowalewski, an executive officer in charge of corporate development for American Apparel. During this call, Messrs. Dolfi and Kowalewski had preliminary discussions as to whether American Apparel would be receptive to a business combination. At this time Endeavor was advised that American Apparel would be interested in receiving additional information about Endeavor and continuing a dialogue. Prior to this initial contact, there had been no contact between American Apparel and Endeavor, its officers, directors, affiliates or any other person on Endeavor’s behalf.

On September 11, 2006, Mr. Dolfi sent preliminary information about Endeavor to Mr. Kowalewski. On September 26, 2006, a meeting among Messrs. Watson, Ledecky and Kowalewski took place at American Apparel’s Los Angeles headquarters. Mr. Kowalewski gave Messrs. Watson and Ledecky a tour of the facilities and answered preliminary questions.

In early October 2006, Mr. Watson was contacted by a private equity owner of a leading fashion accessory company. Endeavor had an initial exchange of information with the target company, and during October 2006, held several telephonic meetings with representatives of the target company. On October 20, 2006, Endeavor made an initial bid for the target company of approximately 175 million British Pounds Sterling. However, in early November 2006, Endeavor was advised that the target company had elected to accept a bid from another party.

On a regular basis throughout October 2006, Messrs. Dolfi and Kowalewski held discussions and exchanged information about American Apparel. Valuation discussions of a general nature took place as the two companies exchanged information.

On October 25, 2006, Mr. Ledecky received a call from Mr. Charney, American Apparel’s chief executive officer and founder. During this conversation, Mr. Ledecky shared information about Endeavor and answered

 

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questions regarding Endeavor’s philosophy with respect to seeking target companies and for the operations and growth of a target post-acquisition. Messrs. Ledecky and Charney also discussed the structural issues surrounding a blank check company. As part of their discussion, Mr. Charney advised Mr. Ledecky that he was currently finalizing long-term negotiations with Mr. Lim, pursuant to which Mr. Charney would purchase of all of Mr. Lim’s interest in AAI and LLC for approximately $60 million. Mr. Charney advised Mr. Ledecky that discussions regarding Mr. Charney’s buyout of Mr. Lim’s interests began in late November/early December of 2005. Preliminary terms were agreed to in principle on or about December 6, 2005. The final terms of the option were negotiated by the parties and their respective counsel on and off for a number of months and the parties, independent of any discussions among American Apparel and Endeavor, finalized their negotiations and executed a definitive option agreement on November 9, 2006. Mr. Charney advised Mr. Ledecky of the possible buyout of Mr. Lim during their initial telephone conversation on October 25, 2006.  At that time the negotiations between Messrs. Charney and Lim were substantially complete and the transaction was being reduced to writing. The terms of the final option agreement were: Mr. Lim granted Mr. Charney and AAI, collectively, an option to purchase all of his interests in AAI and LLC for an aggregate purchase price of $60 million. The consideration for the option was $10.00 and the term of the option was set to expire at 5:00 PDT on May 1, 2007.

On October 26, 2006, Messrs. Watson and Ledecky visited Mr. Charney in Montreal, Canada and during this visit reviewed American Apparel’s history and operations, as well as its on-line and information technology operations, and toured several of American Apparel’s Montreal retail locations. Messrs. Watson, Ledecky and Charney met again over dinner to discuss the companies and their respective backgrounds in greater detail.

From November 13 to November 17, 2006, Mr. Dolfi toured American Apparel’s California facilities and retail locations and conducted financial and general due diligence. From November 20 to November 22, 2006, Messrs. Charney and Ledecky met in New York City in a series of meetings to negotiate the general terms of the transaction. These meetings also included tours of American Apparel’s various New York City retail stores and operations.

On November 22, 2006, Messrs. Charney and Ledecky, together with Mr. Keith Miller (an advisor to Mr. Charney) and Mr. Michael Rapp of Broadband Capital Management LLC, an underwriter of Endeavor’s IPO, met in Mr. Rapp’s offices in New York to discuss the potential transaction and to provide Messrs. Miller and Charney with additional information on special purpose acquisition companies (“SPACs”).

On November 22, 2006, a letter of intent was executed by Endeavor and American Apparel. The terms of the letter of intent provided for (i) the issuance to Mr. Charney of $190 million of Endeavor common stock valued at $7.75 per share (i.e., 24,516,129 shares), (ii) payment of $60 million to Mr. Charney to be used at closing of the acquisition to repurchase all of Mr. Lim’s equity interests in American Apparel (under the terms of an existing option agreement between Messrs. Charney and Lim, discussed below), and the assumption of American Apparel’s debt, which was not to exceed $80 million at closing of the acquisition. The number of shares issuable to Mr. Charney was subject to downward adjustment in the event American Apparel’s EBITDA for 2006 was less than $40 million or its projected 2007 EBITDA was less than $57 million, in each case as adjusted for deferred rent, litigation and other appropriate items. The terms were the result of arms-length negotiations by the parties and based on a valuation of American Apparel by Endeavor as discussed in “The Acquisition Proposal - Endeavors’ Board of Directors’ Reasons for Approval of the Acquisition - Valuation.” The equity/cash makeup of the transaction consideration was mutually desired by the parties. Mr. Charney expressed a desire to receive consideration in shares of Endeavor common stock in order to participate in what he believed would be strong growth of the combined companies following the acquisition. Endeavor favored a large stock component as well, believing that equity in the post-acquisition company would favorably incentivize Mr. Charney in his efforts to continue growing American Apparel.

In the initial negotiations between Endeavor and American Apparel, it was maintained by American Apparel that the consideration in the acquisition would need to include $60 million to fund the Lim Buyout. Given its

 

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valuation of American Apparel, Endeavor viewed the opportunity to acquire Mr. Lim’s position for $60 million cash and to reduce the number of shares of common stock issued in the acquisition favorably. As the option agreement between Messrs. Charney and Lim would expire before the procedures to consummate the acquisition could be completed, an extension of the option was negotiated. In consideration of the extension of the time to exercise the option for the Lim Buyout, it was agreed that the purchase price for Mr. Lim’s equity in AAI would be $60 million plus an additional cash price equal to (x) $60 million divided by 365, (y) multiplied by 0.20, (z) multiplied by the number of days after May 1, 2007 that the Lim Buyout is consummated. This total price is referred to as the “Lim Payment Amount.” It was also agreed that if the Lim Buyout is not consummated by Mr. Charney prior to Closing, Endeavor would effect the Lim Buyout directly by reducing the number of shares of Endeavor common stock to be issued to Mr. Charney by a number equal to the Lim Payment Amount divided by $7.75 and paying to Mr. Lim the Lim Payment Amount in cash. If the acquisition were consummated on October 31, 2007, and Endeavor was required to affect the Lim Buyout on the same date, the number of shares issued to Mr. Charney, as reduced, would be 23,739,815 and Endeavor would pay Mr. Lim $66,016,438.

On November 23, 2006, Endeavor delivered to American Apparel an extensive due diligence request list. Endeavor began to focus its resources on compiling and reviewing in detail the due diligence materials received from American Apparel. Endeavor provided copies of all diligence information received by Endeavor to its counsel, Graubard Miller, for review and legal due diligence. Additionally, Endeavor instructed Graubard Miller to begin preparation of the first draft of a definitive acquisition agreement consistent with the terms of the letter of intent. Throughout the due diligence process, Endeavor and its counsel had numerous telephone conversations with individuals at American Apparel in order to discuss issues relating to the potential transaction.

During the week of December 4, 2006, a series of all-day meetings were held at American Apparel’s headquarters in Los Angeles. The Endeavor due diligence team included Messrs. Ledecky and Dolfi and consultants from Bendon, an apparel company controlled by Mr. Watson. Representatives of Jefferies, which we subsequently retained in connection with rendering a fairness opinion, were also in attendance. During this visit to American Apparel’s facilities, Endeavor interviewed more than 30 American Apparel employees across the various departments of American Apparel. Endeavor also held meetings with the audit partner of American Apparel’s outside certified public accountant. Endeavor also conducted a series of meetings with consultants hired by American Apparel to interface with its senior lenders and subordinated debt lenders. Endeavor conducted telephonic meetings with all of American Apparel’s secured lenders, in each instance, with American Apparel’s chief financial officer, Ken Cieply.

In December 2006, Endeavor retained the services of ICR, LLC as an investor relations consultant to assist Endeavor in developing and disseminating investor presentations and communications. Endeavor pays ICR a fee of $12,000 per month, plus expenses, and will issue ICR 9,700 shares of Endeavor common stock upon Closing. There is no affiliation between ICR and Endeavor or American Apparel or any of their respective officers, directors or stockholders.

Endeavor’s due diligence also included numerous calls with Marcum & Kliegman LLP, both with and without representatives from American Apparel on the phone, where American Apparel’s financial statements, financial reporting systems and significant accounting policies were discussed. Marcum & Kliegman did not provide any report, opinion or appraisal materially relating to the transaction. Marcum & Kliegman is the independent outside auditor for Endeavor and became the independent outside auditor for American Apparel after the Original Agreement was executed. Marcum & Kliegman maintains separate audit teams for each of Endeavor and American Apparel, which teams are independent of one another.

On numerous occasions through the process, Endeavor’s board of directors discussed the terms of the letter of intent and proposed business combination with American Apparel. All of Endeavor’s directors received a copy of the letter of intent as well as financial, operational and descriptive information about American Apparel. The directors were continuously updated as to the status of the due diligence and negotiations, and copies of the most

 

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recent drafts of the significant transaction documents were delivered to the directors in connection with their consideration of the proposed business combination with American Apparel.

Throughout the period from November 23, 2006 through December 18, 2006 succeeding drafts of the transaction documents were prepared in response to comments and suggestions of the parties and their counsel, with management and counsel for both companies engaging in numerous negotiating sessions. Included in the various transaction documents, in addition to the Acquisition Agreement, were an escrow agreement, voting agreement, lock-up agreements, and an employment agreement for Mr. Charney.

Representatives of Endeavor met with Mr. Charney at the offices of Graubard Miller numerous times during the period from December 11, 2006 through December 18, 2006 in order to resolve open items and to discuss the progress of the transaction. During these discussions, negotiations were conducted to revise the terms of the acquisition. It was agreed that the parties would prefer that the acquisition consideration be solely in the form of stock in order to preserve as much of Endeavor’s cash as possible so it would be available to American Apparel after the closing of the business combination to fund American Apparel’s operations and growth plans and provide American Apparel with flexibility with respect to its existing credit facilities. It was also agreed by the parties that keeping the acquisition consideration solely in the form of stock would fully align the interests of Mr. Charney with the stockholders of the post-business combination and evidence his belief in the future potential of American Apparel. However, it was also determined that the purchase of Mr. Lim’s equity interest in American Apparel could be accomplished only with cash. It was decided that Mr. Charney would be given the opportunity to purchase Mr. Lim’s position prior to Closing, and if this could not be accomplished, that Endeavor would purchase Mr. Lim for cash as further described in this proxy statement. Increases to American Apparel’s indebtedness were noted and it was agreed that if American Apparel’s net debt was more than $110,000,000 when acquired by Endeavor, the number of shares of Endeavor common stock to be issued in the acquisition would be lowered as described in this proxy statement. As part of this negotiation, the parties agreed to eliminate a share reduction based on EBITDA, but to have EBITDA targets remain a waiveable condition to Closing. The draft of the Original Agreement was revised to reflect these modified terms.

On December 18, 2006, a meeting of the board of directors of Endeavor was held. All directors attended, as did, by invitation telephonically, David Alan Miller, Esq., Brian L. Ross, Esq. and Jeffrey M. Gallant. Esq. of Graubard Miller. Prior to the meeting, copies of the most recent drafts of the significant transaction documents, in substantially final form, were delivered to all participants. Messrs. Watson and Ledecky discussed the analysis undertaken by Endeavor at length with Endeavor’s board to determine whether the acquisition consideration to be paid by Endeavor was fair from a financial point of view to Endeavor’s stockholders, as well as to determine the fair market value of American Apparel. The analysis used by Endeavor and presented for consideration by the board was based on a valuation of American Apparel as compared to similar companies, and its growth potential in relation to such valuation. The comparable company analysis was based on revenues and EBITDA of similar companies in the apparel industry as further discussed in the section entitled “The Acquisition Proposal—Endeavor’s Board of Directors’ Reasons for Approval of the Acquisition—Valuation of Original Terms.”

After considerable review and discussion by the board, it was determined that the consideration to be paid in the acquisition as set forth in the Original Agreement executed in December 2006 was fair and that the acquisition was fair to Endeavor and to its stockholders. The Original Agreement and related documents were unanimously approved, and the board determined to recommend the approval of the acquisition to the stockholders of Endeavor. However, the board specifically conditioned such approval on Endeavor obtaining, prior to soliciting the vote of stockholders on the acquisition, an opinion from an investment bank to the effect that the consideration to be paid by Endeavor pursuant to the Original Agreement is fair, from a financial point of view, to the holders of Endeavor common stock and that the fair market value of American Apparel was at least equal to 80% of Endeavor’s net assets.

The Original Agreement was signed on December 18, 2006. Immediately thereafter, Endeavor and American Apparel issued a joint press release announcing the execution of the Original Agreement and

 

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discussing the terms of the Original Agreement, and on December 20, 2006, Endeavor filed a Current Report on Form 8-K discussing in greater detail the terms of the Original Agreement and American Apparel’s business.

In June 2007, Mr. Ledecky was advised by Mr. Charney that American Apparel’s business was experiencing greater growth, with existing store sales growing and opportunities to open additional retail stores increasing, than was originally anticipated in December 2006. Mr. Charney expressed concern that the provisions of the Original Agreement would limit American Apparel’s ability to exploit and continue this growth. Mr. Charney also noted his belief that the value of American Apparel and its business had increased substantially since the execution of the Original Agreement. After consultation with Mr. Watson and members of the Endeavor board, Mr. Ledecky advised Mr. Charney that Endeavor would take all of the concerns he expressed under advisement and would continue to monitor the financial results of American Apparel.

During the period from July 2007 through October 2007, Endeavor reviewed American Apparel’s financial performance for the six month period ended June 30, 2007, and also monitored American Apparel’s financial performance subsequent to June 30, 2007. Endeavor also considered American Apparel’s need to access capital to fund its operations, new store openings and continued growth prior to the Closing. Endeavor further considered the need to retain and attract employees as American Apparel grows. In this context, Endeavor and American Apparel held various discussions with respect to amending certain terms of the Original Agreement.

In mid-October 2007, Mr. Watson and Mr. Charney met in Paris, France to discuss specific modifications to terms of the Original Agreement including increasing the number of shares to be issued to Mr. Charney to better reflect the value of American Apparel, increasing the net debt American Apparel could undertake prior to Closing to accommodate the need to finance growth opportunities, such as new stores openings, and an increase in the size of the 2007 performance equity plan to enable American Apparel to attract and retain officers qualified to work in a public company structure and employees to support continued growth. It was also noted that as a private company without adequate equity participation plans in place, it has proven difficult for American Apparel to hire certain executive officers it believes it will need as a public company, including a chief operating officer and chief information officer. Mr. Charney requested that the hiring of such officers as a condition to Closing be waived.

During the remainder of October 2007, Messrs. Ledecky and Watson, on behalf of Endeavor, and Messrs. Charney and Kowalewski, on behalf of American Apparel, and their respective counsel, discussed and formulated proposed amended deal terms. When the parties entered into the Original Agreement in December 2006, Endeavor did not have access to final 2006 financial results for American Apparel and had only preliminary projections with respect to 2007. As 2007 has progressed, American Apparel’s operations and financial results have materially exceeded the parties’ expectations upon which the Original Agreement was based and, at the same time, projections for future results have materially increased. As an example, American Apparel experienced third quarter 2007 same-store sales growth of 27% during a period in which other comparable retailers experienced modest growth, demonstrating to Endeavor and the marketplace American Apparel’s position as a unique high growth retailer. American Apparel further demonstrated its growth through its revised expectation of adjusted EBITDA for the first nine months of 2007 in excess of $40 million, which was its previous guidance for the entire fiscal 2007 year. Endeavor has strived to be a fair partner to American Apparel throughout the process and American Apparel has acted in kind. Endeavor believes that American Apparel is a materially more valuable business then when the original acquisition agreement was conceived. This despite the fact that American Apparel has not had access to the capital from Endeavor’s trust fund within the time period originally expected; indeed, when the parties entered into the original acquisition agreement in December 2006, it was not contemplated that the transaction would take a full year to complete. Given the importance of Mr. Charney to American Apparel’s brand identity and continued growth, Endeavor believes that the Endeavor stockholders benefit from the amended transaction terms by allowing Mr. Charney to receive fair value for the company he founded and keeping him dedicated to American Apparel and its growth now and after the acquisition is consummated. On October 26, 2007, Messrs. Ledecky and Watson agreed to present such amended terms to Endeavor’s board. See “Important events subsequent to initial board approval—Amended terms of the acquisition.”

 

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On October 29, 2007, Endeavor’s board of directors met to consider the proposed amended terms of the acquisition. All directors, other than Jay Nussbaum, attended the meeting either in person or telephonically. Mr. Nussbaum was later advised of the resolutions of the board and affirmed them. Also present by invitation were David Alan Miller. Esq., and Brian L. Ross, Esq., of Graubard Miller. Prior to the meeting, copies of drafts of the Acquisition Agreement and revised employment agreement for Mr. Charney were distributed to the meeting attendees. Messrs. Watson and Ledecky discussed at length the significant growth experienced by American Apparel’s business during 2007. The board then made an analysis of the proposed amended terms of the acquisition to determine if the consideration to be paid by Endeavor in the acquisition was still fair from a financial point of view to Endeavor’s stockholders, as well as to determine the fair market value of American Apparel. The analysis used by the board was similar to that it utilized when first considering the transaction in December 2006 and was based on a valuation of American Apparel as compared to similar companies and its growth potential in relation to such valuation. The comparable company analysis was based on revenues and EBITDA of such similar companies in the apparel industry as further discussed in the section entitled “The Acquisition Proposal—Endeavor’s Board of Directors’ Reasons for Approval of the Acquisition—Important events subsequent to initial board approval.”

After considerable review and discussion by the board, it was determined that the consideration to be paid pursuant to the Acquisition Agreement was fair and that the acquisition was fair to Endeavor and to its stockholders. The Acquisition Agreement and related documents were unanimously approved and the board decided to recommend the approval of the acquisition to the stockholders of Endeavor.

The Acquisition Agreement was executed as of November 7, 2007. On November 8, 2007, Endeavor and American Apparel issued a joint press release announcing the execution of the Acquisition Agreement and discussing the terms of the Acquisition Agreement, and on November 9, 2007, Endeavor filed a Current Report on Form 8-K discussing in greater detail the terms of the Acquisition Agreement and American Apparel’s business.

Other than the shares issuable to Mr. Dolfi and ICR, there are no finders’ fees payable in connection with the acquisition.

Endeavor’s Board of Directors’ Reasons FOR Approval of the Acquisition

General

The final agreed-upon consideration in the Acquisition Agreement was determined by several factors. Endeavor’s board of directors reviewed industry and financial data, including a comparable company analysis compiled by management, in order to determine that the consideration to be paid by Endeavor in the acquisition was fair and that the acquisition was in the best interests of Endeavor’s stockholders.

In order to enable the board of directors of Endeavor to evaluate the proposed acquisition, Endeavor’s management conducted a due diligence review with respect to American Apparel that included:

 

   

a general analysis of American Apparel’s industry;

 

   

tours of American Apparel’s manufacturing facilities and principal offices in Los Angeles, California;

 

   

on-site visits to various American Apparel retail stores;

 

   

a valuation analysis of American Apparel; and

 

   

reviews of historic financial statements and information and financial projections provided by American Apparel.

The Endeavor board of directors considered a wide variety of factors in connection with its evaluation of the acquisition. In light of the complexity of those factors, the Endeavor board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision. In addition, individual members of the Endeavor board may have given different weight to different factors.

 

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The historical financial information and financial projections provided to Endeavor by American Apparel in November and December 2006 included:

 

   

audited financial statements for the year ended June 30, 2004 and the six months ended December 31, 2004;

 

   

unaudited financial statements for the year ended December 31, 2005;

 

   

unaudited financial statements for the ten-month period ended October 31, 2006; and

 

   

financial projections for the year ending December 31, 2007.

The historical financial information and financial projections provided to Endeavor by American Apparel subsequent to the execution of the Original Agreement have included:

 

   

audited financial statements for the years ended December 31, 2006 and 2005;

 

   

unaudited financial statements for the year ended December 31, 2004;

 

   

unaudited financial statements for the three months ended March 31, 2007;

 

   

unaudited financial statements for the six months ended June 30, 2007; and

 

   

preliminary unaudited financial statements for the nine months ended September 30, 2007.

Initial board approval

As of December 18, 2006, the date on which Endeavor’s board of directors first met to vote upon the acquisition of American Apparel, American Apparel had provided Endeavor with estimates that American Apparel’s revenues for the year ending December 31, 2006 would be approximately $275 million, a 27.3% increase from revenues of $216 million for the year ended December 31, 2005. As of December 18, 2006, American Apparel had also provided Endeavor with projections that American Apparel’s revenues for the year ending December 31, 2007 would be at least $355 million, a 22.5% increase from the $275 million of revenues then expected for the year ending December 31, 2006. American Apparel had advised that the growth in revenues evidenced by these estimates and projections would be driven by anticipated growth in same store sales and the opening of additional retail locations, as well as increases in online sales. As of December 18, 2006, American Apparel was projecting approximately $30 million of EBITDA for 2006, giving effect to various non-cash and adjustments (of up to $5 million in the aggregate) prescribed by the Acquisition Agreement and $50 million of EBITDA for 2007, subject to similar adjustments. American Apparel had advised Endeavor that the projected increase in EBITDA from 2006 to 2007 would be driven primarily by the projected increase in revenues and improvements in EBITDA margins as selling, general and administrative and research and development expenses were forecast to decrease as a percentage of sales as they were spread across a larger base of revenues.

Based on the foregoing information and procedures, the board of directors of Endeavor unanimously approved the Acquisition Agreement. In considering the acquisition, the Endeavor board of directors gave considerable weight to the following factors:

 

   

American Apparel’s record of growth and potential for future growth. Endeavor believes that American Apparel has a well-established and growing brand and has in place the core infrastructure for strong business operations that will enable American Apparel to achieve growth both organically and through accretive strategic acquisitions. Endeavor’s belief in American Apparel’s growth potential is based in part on American Apparel’s historical growth rate. American Apparel had experienced a compounded annual growth rate of approximately 62% in revenues from approximately $40 million in 2002 to estimated revenues of $275 million in 2006, while it experienced a compounded annual growth rate of approximately 69% in EBITDA from approximately $4 million to more than $30 million over the same period.

 

   

American Apparel’s ability to broaden distribution. American Apparel has demonstrated continued organic growth in core US, European and Asian markets, with more than 140 company-owned retail

 

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stores worldwide as of December 18, 2006. American Apparel also has demonstrated an ability to expand distribution to additional channels, including though wholesale operations to other apparel providers and online sales to American Apparel customers.

 

   

“American Apparel” is a recognizable brand targeted toward an emerging demographic. The American Apparel brand has received a large amount of coverage in the print and broadcast media, including on television such as The Today Show, Nightline, 60 Minutes, Charlie Rose and Dateline. This brand and the products which are marketed under the brand are targeted toward the young adult market, which is one of the largest emerging market demographics.

 

   

The experience of American Apparel’s management. An important factor to Endeavor’s board of directors in evaluating an acquisition target was whether the target had a management team with specialized knowledge of the markets within which it operates and the ability to lead a company in a rapidly changing environment. Endeavor’s board of directors believes that American Apparel’s management, and Mr. Charney in particular, have experience and talent in the apparel industry as demonstrated by the background of the members of American Apparel’s management and American Apparel’s ability to develop new product offerings in fashion basics, as well as new categories.

 

   

American Apparel’s vertically integrated business model. American Apparel’s business model utilizes American Apparel’s own manufacturing facilities and exploits the company’s U.S.–based design and manufacturing operations to provide speed to market, which allows American Apparel to produce product quickly when specific demand is identified and to supervise quality control. This allows American Apparel to focus on year-round styles, minimize risk of producing ahead of demand and maintain the quality production identified with the brand.

Certain Projections Provided by American Apparel

In its evaluations of the potential acquisition of American Apparel, Endeavor considered various projections provided to it by American Apparel, comprised principally of revenue and EBITDA projections for 2006, 2007 and 2008. Endeavor compared these revenue and EBITDA projections for American Apparel to publicly available revenue and EBITDA estimates for the same time periods for public companies in the apparel industry. Endeavor compared the relationship between overall enterprise value as publicly reported for each comparable public company to such comparable company’s projected revenues and EBITDA to determine the multiples being given by the public market to such companies in relation to their respective revenues and EBITDA.

Projections used for original deal terms.

The projections provided by American Apparel to Endeavor during the due diligence period prior to execution of the Original Agreement in December 2006 (the “2006 projections”) consisted of information relating to American Apparel’s projected revenue and EBITDA for the years then ending December 31, 2006 and December 31, 2007. American Apparel also provided projections with respect to the number of retail stores it would have open by the end of 2006.

Prior to execution of the Original Agreement, American Apparel projected consolidated revenues of approximately $275 million for the year ending December 31, 2006 and approximately $355 million for the year ending December 31, 2007. These projections demonstrated a continuance of the trend of growth evidenced by American Apparel’s consolidated revenues of approximately $40 million, $82 million, $136 million and $208 million in the years ended December 31, 2002, 2003, 2004 and 2005, respectively. Actual consolidated revenues for American Apparel for the year ended December 31, 2006 were approximately $284 million. Actual consolidated revenues for American Apparel for the nine months ended September 30, 2007 were approximately $276 million.

American Apparel projected consolidated EBITDA of approximately $30 million for the year then ending December 31, 2006 and approximately $50 million for the year ending December 31, 2007 giving effect to

 

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adjustments as is described below in the section entitled “—Certain Adjustments Considered by Endeavor.” These projections demonstrated a continuance of the trend of growth evidenced by American Apparel’s consolidated EBITDA of approximately $3 million, $8 million, $12 million and $17 million in the years ended December 31, 2002, 2003, 2004 and 2005, respectively. Without adjustment, actual consolidated EBITDA for American Apparel for the year ended December 31, 2006 was approximately $22.4 million. Actual consolidated EBITDA for American Apparel for the six months ended June 30, 2007 was approximately $24.1 million. These amounts give no effect to the adjustments required under the Acquisition Agreement. See the section below entitled “Certain Adjustments Considered by Endeavor” for a discussion of the adjustments considered by Endeavor in its evaluation of American Apparel.

American Apparel projected that it would have 143 retail stores opened at December 31, 2006. These projections demonstrated a continuance of the trend of growth evidenced by American Apparel having 103 retail stores, 38 retail stores, 3 retail stores and no retail stores opened at December 31, 2005, 2004, 2003 and 2002, respectively.

Projections used for amended and restated deal terms.

In September and October 2007 American Apparel provided Endeavor with updated projections. These projections were utilized by the parties in connection with formulating the amended terms of the Acquisition Agreement.

American Apparel projected consolidated revenues of approximately $365 million for the year ending December 31, 2007. This projection demonstrated a continuance of the trend of growth evidenced by American Apparel’s consolidated revenues of approximately $40 million, $82 million, $136 million, $208 million and $284 million in the years ended December 31, 2002, 2003, 2004, 2005 and 2006, respectively. Actual consolidated revenues for American Apparel for the nine months ended September 30, 2007 were approximately $275.6 million.

American Apparel projected consolidated EBITDA of approximately $57 million for the year then ending December 31, 2007 and approximately $75 million for the year ending December 31, 2008 giving effect to certain adjustments considered by Endeavor. These projections demonstrated a continuance of the trend of growth evidenced by American Apparel’s consolidated EBITDA of approximately $3 million, $8 million, $12 million, $17 million and $24.1 million in the years ended December 31, 2002, 2003, 2004, 2005 and 2006, respectively. Actual consolidated EBITDA for American Apparel for the nine months ended September 30, 2007 was approximately $35.0 million. See the subsection below entitled “—Certain Adjustments Considered by Endeavor” for a discussion of the adjustments considered by Endeavor in its evaluation of American Apparel.

American Apparel projected that it would have 176 retail stores opened at December 31, 2007. These projections demonstrated a continuance of the trend of growth evidenced by American Apparel having 149 retail stores, 103 retail stores, 38 retail stores, 3 retail stores and no retail stores opened at December 31, 2006, 2005, 2004, 2003 and 2002, respectively.

The projections provided by American Apparel were only estimates based on information available to American Apparel at the time they were made and based on reasonable assumptions made on such information. The foregoing summary of these projections are included solely to provide reader of this proxy statement with background information on the information considered by Endeavor and its board in connection with their evaluation of American Apparel and its operations and, solely with respect to the 2006 projections, by Jefferies in its analyses described below in the section entitled “Opinion of Jefferies & Company, Inc.” Investors should not rely on these projections as estimates of future results of American Apparel or the combined companies following consummation of the acquisition and should not place undue reliance on these projections when evaluating the proposals to be presented at the special meeting of Endeavor’s stockholders.

 

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Valuation of original terms

In its evaluation of the original terms of the acquisition as contemplated by the Original Agreement, the board considered the valuation of American Apparel in relation to its growth potential and found it to be attractive when compared to other companies in its industries. As part of such analysis, the board looked at comparable companies and based on the valuation of these companies in terms of expected 2006 revenues, 2006 expected EBITDA and projected 2007 EBITDA, the board calculated the expected initial valuation of American Apparel in the public market. Endeavor presented its board with information regarding certain publicly-traded companies that compete in American Apparel’s markets, as follows:

 

Company

 

Enterprise

Value (1)

  Revenue
CY2006E (2)
  EV /
Revenue
    EBITDA  

EV / EBITDA

    Annual
Sales (3)
  Net
Income (3)
 
      CY2006E (2)     CY2006E (2)   CY2007E (2)   CY2006E (2)     CY2007E (2)      
    (in millions)  

Abercrombie & Fitch Co. (Cl A)

  $ 6,017.3   $ 3,325.7   1.8 x   $ 801.2   $ 924.3   7.5 x   6.5 x   $ 3,140.8   $ 388.5  

American Eagle Outfitters Inc.

    10,517.9     2,732.2   3.8       667.5     738.7   15.8     14.2       2,577.5     344.3  

bebe Stores Inc.

    1,629.0     702.1   2.3       153.7     190.5   10.6     8.6       610.0     80.7  

Chico’s FAS Inc.

    3,614.6     1,629.0   2.2       346.0